MITIE Group plc Annual Report 2015

Transcription

inspiring
change...
Mitie Group plc
Annual Report and Accounts 2015
Contents
Our
business…
02
Strategic report
02
The Mitie business
04
Chairman’s statement
06 Chief Executive’s strategy overview
10
Our strategy
14
Marketplace
16
Operating review
22
New contracts update
32
Financial review
38
Principal risks and uncertainties
40
Sustainability
how we
manage it…
42
Governance
42
Board of Directors
44
Chairman’s introduction
to Corporate Governance
45
The Board
49
Audit Committee
54
Nomination Committee
57
Directors’ remuneration report
79
Directors’ report: other disclosures
85
Directors’ report: statement
of Directors’ responsibilities
and how
it performs…
86
Financial
86
Independent auditor’s report to
the members of Mitie Group plc
90 Consolidated income statement
91
Consolidated statement
of comprehensive income
92
Consolidated balance sheet
94
of changes in equity
95
of cash flows
97
Notes to the consolidated
financial statements
140 Company balance sheet
141 Notes to the Company
IBC Shareholder information
Strategic Report
Governance
Financial
Introduction
...in the way
people live
and work.
Our business is focused on
helping clients to run their
businesses more effectively.
We’re all about developing
people to excel at what
they do, challenge how things
are done and inspire change.
Mitie Group plc
01
The Mitie business
Creating value...
Understanding
client needs
We get to know our clients’ strategy
and what they need from their people
and their property, so we can help
them to achieve their goals.
Advising and
designing services
We use our extensive knowledge
and experience of property, workplaces
and services to advise our clients on
the best way forward. We apply fresh
thinking to create innovative ways to
live and work.
Motivating and
managing people
Our fundamental skill is in getting
the best out of a large and diverse
workforce and supply chain, allowing
a client to focus on their core objectives.
Our ethos of share ownership makes
us different.
…across the breadth of our
offer managing our clients facilities
and looking after their people
Hard FM
Security
We provide a wide range of facilities
management (FM) services across
the UK, Ireland and Europe. These are
delivered as integrated FM contracts, in
bundles or as single services, depending
on client requirements.
Our property management business
provides repair and maintenance services
in the social housing markets.
And we provide high quality homecare in
the UK, delivering a wide range of services
to people who require help and support
due to illness, disability or infirmity.
Integrated FM
Catering and front of house
Cleaning and environmental services
Facilities
Management
Property
Management
£1.9bn
£273m £91m
02
Mitie Group plc
Healthcare
Strategic Report
Technology and
systems that provide
data and management
information
We make sure that our people have the
right technology and systems do their job
properly. To manage and deliver services,
we analyse and act on our own and our
clients’ data to provide the best service
and most efficient solutions.
Governance
Financial
Delivering value for Mitie
clients, people, communities
and shareholders
We provide a service that helps our clients run their
organisations more efficiently. We engage with local
communities to recruit apprentices, develop careers
and inspire people, to benefit society as a whole.
In return we are able to deliver sustainable profit
that creates value for our shareholders.
Integrated FM
Hard FM
a Advice
a Strategy
a Management
a Data
a Property consultancy
a Care and custody
a Maintenance
a Compliance
a Projects
a Energy
a Catering
a Events
a Reception
a Helpdesk
Security
a Manned guarding
a Systems
a Vetting
a Document management
a Cleaning
a Landscaping
a Waste Management
a Pest Control
Property Management
Healthcare
a Housing maintenance
a Painting
a Insurance claim
response management
a Homecare
a Complex care
More on our operational performance:
Page 16
Mitie Group plc
03
Chairman’s statement
Well-positioned
for growth
Overview
This has been a year of significant
progress for Mitie. We have repositioned
the business to focus on our profitable
and successful facilities management
(FM) business. We have also completed
the exit from our mechanical and electrical
engineering construction and Asset
Management businesses. Whilst this
has come at a significant cost, this action
has significantly reduced the potential
volatility of the group’s future earnings.
We are confident that the right long-term
decisions have been made for the business
and we now have a substantially lower
risk profile.
Headline financial highlights
+5.8%
+0.9%
Revenue (4.9% organic growth)
Operating profit
£2,266.2m (2014: £2,142.6m)
£128.6m (2014: £127.5m)
5.7%
95.1%
Operating profit margin
Cash conversion
(2014: 6.0%)
(2014: 102.4%)
+6.4%
+2.1%
Dividend per share
Basic earnings per share
11.7p (2014: 11.0p)
24.8p (2014: 24.3p)
18.6%
85%
Return on capital employed
2016 budgeted revenue secured
(2014: 16.9%)
(prior year: 84%)
£9.0bn
£9.7bn
Order book
Sales pipeline
(2014: £8.7bn)
(2014: £8.2bn)
04
Mitie Group plc
Our FM business has continued to
perform strongly, with a steady flow
of contract awards and retentions
across our key sectors, generating
strong organic revenue growth of 6.1%.
There are significant market opportunities
that will enable us to further grow our
share of single, bundled and integrated
work, across all of our service lines.
Our focus has always been on building
long-term partnerships with our clients.
The extension of our integrated FM
contract with Lloyds Banking Group
this year, through to 2022, was
particularly significant.
The other two main areas we work
in – social housing and healthcare –
experienced a challenging year, as a result
of pricing pressure in both these markets.
However, we still see good long-term
opportunities to deliver growth in both
these markets.
People
We believe in recruiting the best people
and motivating them to produce excellent
performance. I would like to personally
thank all the people of Mitie, who have
contributed to our performance this year,
for their hard work and dedication to
our clients.
Strategic Report
Results
During the year, headline revenue grew
by 5.8% to £2,266.2m (2014: £2,142.6m),
of which 4.9% was organic. Headline
operating profit increased by 0.9% to
£128.6m (2014: £127.5m), reflecting
a margin of 5.7% (2014: 6.0%). Headline
profit before tax increased by 0.7% to
£114.1m (2014: £113.3m) and headline
earnings per share increased by 2.1%
to 24.8p (2014: 24.3p).
Our statutory results include £72.6m
of other items (2014: £44.9m), of which
£62.5m are non-recurring (2014: £33.9m).
The key non-recurring items are: £15.9m
of trading losses incurred as part of our
exit from our mechanical and electrical
engineering construction business
(2014: £13.6m); exceptional charges of
£45.7m relating to our Asset Management
business (2014: £25.4m) and costs
resulting from acquisitions and related
integration costs of £0.9m (2014: £5.4m).
Statutory profit before tax was £41.5m
(2014: £68.4m) and statutory earnings
per share was 9.7p (2014: £13.4p).
Cash generation was excellent, with
cash inflows from operations of £113.2m
(2014: £124.1m), representing good
conversion of headline EBITDA to cash
of 95.1% (2014: 102.4%). The balance
sheet remains robust with net debt at
the year-end of £177.8m or 1.2x headline
EBITDA (2014: £186.6m or 1.3x). It is
our aim to increase return on capital
employed and it was 18.6% (2014: 16.9%).
In July 2014 the group completed a
refinancing of its revolving credit facility
through a syndicate of six banks which
secured £275m of committed facilities for
a further five years at margins favourable
to the previous facility. Including US
Private Placement notes, the group now
has committed funding of £527m in place
to support future growth.
During this period, our order book
has increased by £0.3bn to £9.0bn
(2014: £8.7bn). Our sales pipeline currently
stands at £9.7bn (2014: £8.2bn) and our
forward revenue visibility is excellent, with
contracted revenue for the year ending
31 March 2016 at 85% of budgeted
revenue (prior year: 84%).
Dividend
The Board’s policy is to grow the dividend
at least in line with the underlying earnings
of the group, while maintaining dividend
cover at a prudent level. The final dividend
proposed by the Board has increased
by 6.6% to 6.5p per share (2014: 6.1p
per share), bringing the full year dividend
to 11.7p per share (2014: 11.0p per
share), an increase of 6.4%. This results
in a dividend cover of 2.1x (2014: 2.2x).
Subject to shareholder approval at
the Annual General Meeting (AGM),
the dividend will be paid on 4 August
2015 to shareholders on the register
at 26 June 2015.
Board and corporate
governance
Corporate governance remains an
important and committed area of focus
for the Board. The priorities during the
year were our growth strategy, the exit
from loss-making businesses, the ongoing
review of performance and risk and the
composition of the Board.
On 31 July 2014, Bill Robson stepped
down as an Executive Director of the
Board. On behalf of the Board, we thank
him for his contribution and am delighted
that he remains as part of the executive
team, in his role as Managing Director
of our Property Management division.
On 1 October 2014, Crawford Gillies
stepped down from his role as Chairman
of the Remuneration Committee; and
he will step down as a Non-Executive
Director of the Board at the AGM on
13 July 2015. We thank him for his
valuable contribution to the Board.
Jack Boyer, Non-Executive Director,
has taken on the role of Chairman
of the Remuneration Committee.
Governance
Financial
David Jenkins will retire from the
Board in December 2015. He will
step down as Chairman of the Audit
Committee and Senior Independent
Director at the AGM. We thank David
for his valuable contribution to date
and for his commitment to the group
by continuing on the Board to ensure
a smooth transition. Larry Hirst, who
has been a Non-Executive Director for
the past five years, will be appointed
Senior Independent Director at the
AGM. Mark Reckitt will be appointed as
a Non-Executive Director of the Board
with effect from 1 July 2015. He will
be appointed Chairman of the Audit
Committee as David’s successor, and will
also be appointed to the Nomination and
Remuneration Committees. Mark brings
significant expertise and experience,
having held senior business, strategy and
finance roles at Smiths Group plc, Kraft
Foods Inc., and Cadbury plc. He is NonExecutive Director and Chairman of the
Audit Committees at both Cranswick plc
and J D Wetherspoon plc.
Outlook
Mitie has made good progress this year.
We have repositioned the business and
lowered our risk profile. Our Facilities
Management business accounts for
c.85% of group revenue and is the UK
market leader.
We see considerable opportunities
across our markets to provide clients
with higher quality, innovative services
that save them money.
We are only as good as all our people,
and supporting and developing them
is critical to our ongoing success.
We are focused on generating profits
backed by cash, maintaining strong
margins and growing the dividend.
With a substantial order book and sales
pipeline, we are now well placed to deliver
consistently good growth. We look ahead
with confidence.
Roger Matthews
Chairman
Mitie Group plc
05
Chief Executive’s strategy overview
A successful business
with huge potential
Overview
Mitie is a really successful business and we
have huge potential. We continue to focus
on our core facilities management (FM)
business where our outsourcing services
help clients run their businesses more
efficiently and effectively. In short, we look
after our clients’ buildings, facilities, and
people, and we did so with great success
during the year.
We do this by building long-term
relationships with clients and always
looking at every aspect of service
delivery from the client’s perspective.
We constantly challenge the status
quo, and these high standards translate
into cost and performance benefits for
our clients.
Our teams are responsible for delivering
the widest range of FM services in the UK,
from cleaning, landscaping, pest control
and waste to security, catering, front of
house, technical engineering maintenance
and building services.
At the same time, we have a property
management business providing social
housing maintenance and painting, and
a healthcare business that provides
homecare services that enable
individuals to live more comfortable and
independent lives. Whilst this has been
a challenging year for these businesses,
the long-term prospects for both markets
remain positive.
06
Mitie Group plc
Strategic Report
Developments during the year
This has been a year of important
contract awards and retentions.
With repeat business being an excellent
indicator of a company’s strengths and
the most important driver of our own
organic growth, it was rewarding to
again see our contract retention rate
in FM above our target of 90%, at 96%.
During the year we were particularly
delighted to extend our transformational
partnership to deliver integrated FM for
Lloyds Banking Group. Our initial fiveyear contract commenced in 2012 and
the new agreement will extend it through
to the end of 2022. This is one of the
biggest private sector FM contracts of its
type and is an excellent example of two
organisations working in partnership.
At Heathrow Airport, our proactive
working relationship has led to an
expansion of our FM contracts there
to include additional security services
such as hold baggage screening and
immigration presentation services,
and we see significant opportunities
to further expand our presence across
the Heathrow estate.
In-house
We were also awarded a number of major
contracts with new clients during the year.
Jones Lang LaSalle has appointed us to
deliver FM services across its UK property
portfolio, in a contract valued in excess of
£85m over three years.
Our Environmental+ business was
awarded a £90m first-generation
outsourcing contract to deliver soft FM
services for seven years, across three
sites of the Royal Cornwall Hospitals NHS
Trust. We also made good progress in the
areas of waste management, landscaping
and pest control. The waste business
was awarded its largest ever contract
with a multinational consumer goods
company, for a value of £18m over three
years. Our landscaping and pest control
businesses benefited from a very strong
year of retention as well as cross-selling
to our existing client base. It extended
or retained contracts with valued clients
including the Co-op, Sainsbury’s and
Mitchells & Butlers.
The ethos of employee share ownership
has always been at the heart of our
business. The ‘Mitie Model’ underpins
our entrepreneurial culture and is a key
differentiator in the market; we continue
to use this to attract great management
teams and build our service offering.
Financial
We believe this is the best environment
in recent years in which to start and grow
new businesses, and we plan to back
entrepreneurs to do this through the
launch of a £20m entrepreneurial fund.
Our catering business, Gather & Gather,
is an example of where our equity model
is resulting in very strong performance.
We brought in a management team four
years ago, who invested in the business
and have since more than trebled its
revenues and transformed our offering.
It launched its offering in Ireland during
the year and has had notable success
there already with the award of landmark
new contracts, including Primark and
LinkedIn, generating revenue of £15m
per annum.
Our Care and Custody business was
also built using the Mitie model, and just
four years after entering the market, it is
now the largest provider of immigration
detention services to the Home Office.
During the year we successfully
mobilised the eight-year, £180m contract
to manage and maintain the Colnbrook
and Harmondsworth detention centres
for the Home Office, and this contract
is progressing well.
Single services
Bundled services
Integrated FM
A range of specialist
single services
Broader cost savings
Synergies between service lines
Integrated delivery –
one client contact
Standardised provision
Significant synergies
Management team employed
by Mitie (thin client layer)
Shift
Incremental savings
Governance
Data and information systems
drive strategic property decisions
20-30%
In-house to single service
+10-15%
Single to bundled services
+10%
Bundled to integrated FM
Strategic partnering
Creating value beyond cost savings
Mitie Group plc
07
Chief Executive’s strategy overview
In January 2015, we were pleased to
acquire the remaining 49% of Mitie
Compliance. This is a business which we
acquired a majority stake of in 2011, then
called Direct Enquiries. The management
team retained a minority stake, with
an incentive to continue building the
business, based on the Mitie model.
It has been very successful, having
grown into one of the UK’s leading
compliance consultancies. It helps
clients to stay compliant with building
legislation, which is vital to sustain safe,
robust and legally compliant operations.
It provides comprehensive technologyled, evidence-based auditing services
and has extensive experience in providing
compliance services for some of the UK’s
biggest businesses.
In November 2014, we acquired a
majority stake of Source8, the real
estate, technology and risk management
consultancy. It provides advisory
and business support services to
governmental and non-governmental
organisations on the implementation
of real estate, technology and risk
management solutions globally.
Its clients include leading global
corporations, and the business has
particular expertise in emerging
markets and complex environments.
Source8 brings a strategic offering with
strong growth potential and consulting
capabilities both in the UK and overseas.
The high quality management team
has retained a minority stake in the
business, and are incentivised to grow the
business, again using our unique equity
model. This purchase is enabling us to
build on our consultancy offer and is
another example of how we are working
hard to deliver a greater breadth of the
FM services that our clients rely on.
08
Mitie Group plc
In October 2014 we acquired Procius,
which specialises in pre-employment
screening. It has particular expertise
in the aviation and transportation
sectors. The acquisition is providing
our security business with extra
capabilities and is supporting its growth
as one of the UK’s largest providers
of pre-employment screening.
Our homecare and social housing
businesses both work predominantly
in the local government sector.
Local authorities have significant
challenges and as a result we have
experienced pricing pressure in both of
these businesses, which has negatively
impacted their financial performance.
In both businesses, we are focused
on working with clients who truly
value the people who deliver such
important services, and with whom
we are able to develop long-term,
sustainable relationships.
In our homecare business, against
this market backdrop, we have closed
or streamlined a number of branches
where the cost pressures are most
intense. In regions where pricing has
reached levels that are not economically
viable, we have withdrawn from bidding
altogether, which has resulted in a lower
volume of hours worked during the
year. We have concurrently continued
to invest in resources and infrastructure
to grow the business for the long term.
Recruitment remains one of the biggest
challenges in this market and we have
taken a number of steps during the
year to address this issue.
We remain confident of the longer-term
opportunities in the healthcare market –
the fundamental demand for care for the
elderly, which can be provided more costefficiently in the home, is growing steadily
and projected to grow faster in the years
to come. We also anticipate growth will
come from working with partners such as
the NHS to improve the overall delivery
of public health services at a lower cost,
through a significantly improved operating
model in care at home. We will also
strengthen our position in the complex
care market, where our Complete Group
business is performing steadily.
Exiting non-core businesses
In 2012, we made the decision to
reduce our exposure to cyclical, high risk,
construction-related markets. This was
not an easy decision, and a very difficult
course of action for Mitie, but it was
undoubtedly the right thing to do for
our long-term future.
We have now completed our exit from
the legacy, loss-making mechanical
and electrical (M&E) engineering
construction businesses as well as our
Asset Management business. Both were
characterised by design and build risk,
high overhead costs and cyclicality.
The M&E construction business closed
before the end of the financial year,
with exceptional losses of £15.9m for
the period. In our Asset Management
business, all operational and financial
risk on the remaining design and build
contracts has been assessed and a
charge of £45.7m is included in Other
items (see Note 3). Beyond these
amounts, no further exceptional
charges will be incurred from either
of these businesses.
Strategic Report
A strategy for
sustainable growth
Brilliant people,
brilliantly engaged
Our strategy continues to deliver results
and therefore remains unchanged: we will
focus on our UK FM business across both
private and public sectors. Specifically,
in FM we aim to remain the UK market
leader in integrated services, to further
grow our specialist single-service
businesses and to be a top four provider
in each of these markets. Our strategy
in property management is focused
on long-term contracts with housing
associations and local authorities.
As always, we are only as good as
our people. Our people are what
make Mitie such a compelling partner
for organisations looking to improve
performance and reduce costs.
Passionate and skilled, our people are
also determined to ‘do the right thing’ at
all times, and during the year we produced
a new code of conduct to support them.
The Code promotes our core values and
the responsible behaviours that underpin
them. It provides guidance and support for
our people when undertaking their work
and draws together all of our longstanding
policies and procedures from all business
areas into one simple and practical guide.
Every Mitie person is encouraged to
understand the importance of following
its principles at all times.
The FM business provides good,
consistent margins and strong organic
growth potential, backed by a healthy
order book and excellent revenue visibility.
We are well-respected leaders in all of
our sectors and see many opportunities
to take further market share by winning
new business and, importantly, retaining
contracts and growing the scope of
services with existing clients. Our clients
are at various stages of the journey from
single service delivery to fully integrated
FM, where we lead the UK market, and
we will support them with a wide range
of services as they move along this path.
In Healthcare, our target is to grow
our homecare business, MiHomecare,
into one of the UK’s leading homecare
businesses. We will also seek to benefit
from the longer-term consolidation in
the market, as Councils shift to more
strategic partnering. This change will be
driven by their need to address financial
challenges, and desire to deliver new and
better service models through greater
integrated working with the NHS.
This is just one example of how we
engage with and support our people.
From communicating via social media to
developing training programmes, we aim
to help them be the best they can be and
to enjoy fulfilling and rewarding careers.
Clearly, that is good for our people but it
is also good for our clients and, ultimately,
for Mitie itself.
Governance
Financial
We are also really passionate about
ensuring we have a diverse business, at
every level of our organisation. Like most
other organisations in the UK, we can
improve on this, particularly at the most
senior levels. Whilst at the plc Board
level, we have a strong track record of
diversity, at the executive management
levels of our business, we would like to
be more diverse. That is why we are
setting internal, aspirational diversity
targets for all of our subsidiary boards
over the next five years. It is important
that everyone has equal opportunities
to progress and succeed in their careers,
and these targets will encourage debate
and discussion around this incredibly
important agenda. It will also achieve
real results.
Looking ahead
We have delivered a strong performance
in our facilities management business
during the year, and we expect to
make further progress next year.
We have significantly de-risked our
group by finalising the exit from our
engineering construction and asset
management businesses.
We are focused on maximising the
long-term growth potential of our
facilities management, property
management and healthcare businesses.
Our order book and sales pipeline are
substantial and allow us to look ahead
with confidence.
The group is well placed to deliver
sustainable, profitable growth.
Ruby McGregor-Smith CBE
Chief Executive
Mitie Group plc
09
Our strategy
A strategy for
sustainable and
profitable growth
Our strategy is to deliver sustainable, profitable growth.
You can find details on our progress against a range
of financial KPIs on page 32.
The strategy is enabled by a focus on six key elements:
1
4
Develop the best talent at every
level of our business.
Develop our service capability
in our current markets and in
markets that offer attractive
growth opportunities.
People
New markets and services
2
5
Provide world-class services to
attract new clients and retain
and expand contracts with
existing clients.
Manage risk and protect
our business and brand.
3
6
Deliver market-leading,
innovative services with
maximum efficiency.
Take a long-term view
by acting responsibly.
Clients
Operational excellence
10
Mitie Group plc
Risk
Responsibility
1
People
People are the lifeblood of our business,
the single factor that makes the difference
between Mitie and our peers.
Every year, we make a significant
investment in attracting, retaining and
developing the best people in the industry
at all levels. This ensures that our people
have the expertise to do a great job and
are motivated to put the client first by
carrying out their tasks efficiently and
effectively. In 2014, for example, our
FM business launched a Key Accounts
programme, which aims to develop our
most senior account directors and future
leaders. Working in partnership with
the Manchester Business School, we
have conducted three intensive courses
focusing on strategic intent, customer
relationships and commercial acumen.
In addition, 120 middle and senior
managers completed structured
personal development through the
Mitie Academy. We have also continued
to actively support the Government’s
apprenticeship programme.
Strategic Report
Governance
Financial
2
Clients
Over 800 Mitie apprentices have
gained nationally recognised
qualifications at levels 2 and 3,
working in our Environmental+, Total
Security Management and Gather &
Gather businesses.
At the year end, we employed 69,557
people. We recognise the value of
training and motivating all of our people.
E-learning is an important tool in our
development programmes and in 2014
we designed and launched Career
Pathways e-learning support, which helps
all of our people learn how to move ahead
in their careers. We have also expanded
our national employee roadshows,
which several thousand of our managers
attended during the year. Our employee
discount programme, Mideals, remains
a really important benefit to all of our
people and we have expanded the range
of rewards it offers.
Everything we do is focused on our clients.
We are all about service excellence and
mark our progress as much by client
satisfaction and retention rates as by
our own financial performance. Our FM
contract retention stands at above 90%.
We are working hard to make sure that
our track record in all sectors, for all
client contracts, reaches those same
high standards.
Mitie clients stay with us because we
prove our value. Often, our relationships
begin with a contract to provide a single
service. Then, as the client experiences
the value we bring to the business, the
relationship evolves into a bundle of
services or a fully integrated contract
which sees us deliver a raft of different
services under a single agreement.
In addition to initiatives such as the Key
Accounts programme – which although
part of our People strategy also delivers
tangible benefits to clients – we strive to
create a culture that always puts client
focus at the heart of how we work.
In the complex outsourcing marketplace,
it is clear that one size will never fit all.
So we treat each client as unique; as an
opportunity to create a tailored service –
or a bundle of services – that meet their
needs with pinpoint precision.
Management retention
%
2011
2012
KPI
89.5
82.5
97.1
2013
Single, bundled and
integrated contracts
%
2011
42
2012
41
2013
41
40
2014
89.2
2014
2015
87.9
2015
Description:
Mitie is a people business and we pride ourselves
on creating and nurturing outstanding managers.
Monitoring how successful we are in retaining our
people is an important measure for us.
Target:
Maintaining a management retention rate of over 80%.
Comment:
Our management retention rate was 87.9% for the year,
excluding redundancies.
Single
38
Bundled
KPI
Client focus means creating a clear
simple message that resonates for
one client and one client alone. This is
uniquely tailored and demonstrates a
real understanding of where they are,
the pressures they are under and how
the services we provide can be linked
together in ways that unlock potential
and deliver new benefits.
Secured revenue
%
84
2014
85
2015
Description:
We are focused on long-term recurring revenue streams.
At the start of each financial year, we calculate the
percentage of budgeted revenue that is already
contracted.
Comment:
At the start of the financial year, 85% of budgeted revenue
for 2015/16 was secured, our highest level ever and a
reflection of the success of our strategy to focus on
long-term secured revenue.
Order book
£bn
2012
26
2013
29
31
2014
30
32
Description:
As a substantial portion of our revenue was historically
generated through single service contracts, one of
our opportunities for growth is through expanding
our relationships with existing clients by providing other
services. We have seen a trend in the market towards
bundled and FM contracts over the past few years and
we are well positioned to meet the demands of this trend
due to our broad range of services. We measure the
percentage of revenue that is generated by these types
of contracts in order to measure how well we are
performing in this area.
85
2013
2011
Integrated
83
2012
13
33
81
2011
58
46
KPI
KPI
6.8
8.6
9.2
8.7
9.0
2015
Description:
Our forward order book shows the total value of
future revenue secured by contractual agreements
and it is a key part of our focus on building long-term
recurring revenue.
Target:
We aim to grow our order book at least in line with
revenue growth.
Comment:
Our order book grew by 3.4% during the year to £9.0bn.
Comment:
62% of revenues are attributable to bundled and integrated
FM contracts.
Mitie Group plc
11
Our strategy
3
4
Operational excellence
Helping clients operate more efficiently
is our core skill. It is why clients choose
to work with us and why we have
grown so consistently. However, we
know that there is always a better way
of working – a better way to deliver
operational excellence and the best
way to stay ahead of the competition.
Management information, data and
technology is an increasingly critical part
of our service offering, and we continue
to invest in this area.
Our team continually seeks out new and
better ways of working. That means
concentrating on what matters most
to customers, listening to feedback and
being innovative to meet ever-increasing
expectations. It means efficient
delivery, using standard processes,
key performance metrics and knowing
exactly who is doing what, where and
when. And it means being effective,
with clearly defined roles and a culture
of continuous improvement supported
by sharing best practice, such as how
we use management information
and technology.
New markets and services
Technology is also a key driver for
efficiency improvement. Our teams
have a long track record of deploying
innovative tools to enhance performance,
from remote surveillance systems to our
Miworld portal which enables clients to
monitor and manage all their buildings
and equipment in one place, in real time.
During 2014, we launched a number of
new technology-led initiatives, including
the security industry’s first ‘all incident’
crime mapping software. This brings
together our recorded security incidents
and police crime data in an online,
UK-wide registry to provide the most
up-to-date intelligence and analytics.
Our current and future performance will
be driven by our experience and expertise
in our core FM markets. However, our
skills are also relevant to adjacent sectors
where we can connect strategically with
customers and offer them efficient and
quality services.
Technology-led solutions have become a
key differentiator to our offering. We have
continued to invest in niche areas that give
us different capabilities and enable us to
constantly expand the breadth of what
we do for our clients.
For example, our acquisition of Procius,
a leading pre-employment screening and
vetting company with over 3,000 clients
across all sectors. Procius provides our
security business with additional niche
capability in a high margin sector, and will
drive its growth as one of the country’s
largest providers of pre-employment
screening, competency management
and criminal records checking services.
The year also saw the acquisition of
Source8, which has added a valuable
real estate, technology and risk
management consultancy offer to our
portfolio, complementing the services
we already provide to our clients.
Source8 brings strong growth potential
to Mitie, supported by a high quality
management team.
Headline operating profit margin
%
2011
KPI
5.7
Organic revenue growth
%
2011
2012
6.2
2012
2013
6.1
2013
2014
2015
6.0
5.7
Description:
Our headline operating profit margin provides us with
a good indicator of the efficiency of our business.
Objective:
Margin increases over the medium-term.
Comment:
Our headline operating profit margin was 5.7%.
KPI
2.1
2014
2015
5.4
5.0
5.2
4.9
Description:
Mitie has historically tracked and reported organic revenue
growth as a key measure of its success. Organic growth is
calculated by using revenue as reported in the Accounts,
based on the continuing businesses and excluding the
impact of material acquisitions or disposals made during
the performance period.
Objective:
Grow revenue organically every year.
Comment:
Mitie achieved 4.9% organic headline revenue growth
across the group in 2015. The operating margin in our FM
business improved, however the overall group margin was
impacted by pricing pressure in our Property Management
and Healthcare businesses.
12
Mitie Group plc
Strategic Report
5
6
Risk management is not a ‘nice to have’
but an essential aspect of how we work.
Our approach to risk management is
based on an enterprise-wide framework
through which we identify, mitigate
and manage our significant risks at
both an operational and strategic level.
Risk management informs every single
decision we take, including our exits from
our M&E engineering construction and
Asset Management businesses, both of
which were completed during the year.
Our business is about more than
delivering great service to clients and
meeting shareholder expectations. As a
very large employer, we touch the lives of
countless people, directly and indirectly.
We have a huge opportunity to use our
expertise and resources to support local
communities and minimise our impact on
the environment. This year was one of our
most successful years to date for the way
in which we succeeded on both counts.
Risk
Financial
Responsibility
Health and safety is a key risk for Mitie
and we are pleased to see the number
of reportable health and safety incidents
reduce again this year. However, we will
never be complacent about the well-being
of our people and continue to focus on
continual improvement. Ethical matters
and behaviours also influence our risk
profile and we encourage the highest
standards across the business. In 2014,
for example, we produced ‘One Code’, a
new code of conduct that promotes our
values and enables our people to do the
right thing at all times.
Reportable accidents
per 1,000 employees
KPI
3.1
2011
3.1
2013
2.6
2014
Youth employment is an issue that really
matters for us. Mitie started out as a
small business in 1987, and we have not
forgotten these roots – it is important
that we continue to support young
people and give them opportunities to
fulfil their potential. We currently have
over 2,000 apprentices in training
across our businesses. In November, we
entered into a partnership with Mosaic,
HRH The Prince of Wales’ mentoring
charity. This will provide ex-offenders
with transferable skills through a series
of workshops and training programmes,
ultimately leading to a work placement
with Mitie. This scheme is overseen by
the Mitie Foundation, our charitable arm,
which focuses on creating opportunities
for people of all backgrounds to join the
world of work by raising aspirations and
unlocking potential.
Carbon dioxide emissions
tonnes per employee
2.3
Description:
The health and safety of our people is critical to our
business. Reportable accidents are those defined as
fatalities, major injuries or resulting in over seven days
absence or restriction from work.
Objective:
In line with our Work Safe Home Safe! employee
engagement programme, our objective is to embed safe
working behaviours and ensure every employee goes
home safely at the end of their working day.
Comment:
Our reportable accident rate shows a significant
improvement on the 2014 rate, with an 11.5% reduction in
the number of reportable accidents. We will maintain our
focus on continual improvement in health and safety risk
management to fulfil our Work Safe Home Safe! vision.
We continue to actively promote diversity
and were named as one of The Times
Top 50 Employers for Women for
the fifth consecutive year. We also
successfully completed the Business
in the Community Gender and Race
Benchmark 2014, earning two gold
and one silver awards.
In terms of the environment, we’ve set
an ambitious target of reducing our
carbon footprint by 35% by 2020, from
a 2010 baseline. This year CO2 emissions
remained constant at 0.63 tonnes
per employee.
More on our financial performance:
Page 32
0.74
0.71
2012
2013
Since its establishment in 2013, the
Foundation has supported careers
events at more than 122 schools,
and successfully helped 42 people
into employment during the year.
We encourage our people to take part
in Foundation events when possible,
with over 200 joining the Mitie London
Revolution, a 192 mile cycle ride that
raised over £28,000 for a new Business
Development Academy with our
education social enterprise partner,
Working Knowledge.
KPI
2011
3.4
2012
2015
Governance
0.64
2014
0.63
2015
0.63
Description:
Emissions are calculated using the Defra guidance on how
to measure and report GHG emissions and apply the 2010
guidelines for company reporting. The rate of CO2e
emissions per Mitie employee is calculated using the
average number of people employed during the year.
Objective:
Understand and minimise the environmental impact
of our operations.
Comment:
Emissions per employee are 20% lower than the baseline.
Mitie Group plc
13
Marketplace
Good growth
opportunities
Customers are always looking for better value and improved
service levels. Our role is to be the experts in providing quality
services and the best outsourcing solutions for them. As a people
business, we do this by having the right people, supporting them,
and ensuring they have the right skills and do things the right way.
We continue to see major opportunities to help clients in both
the public and private sectors shift from outsourcing single
services to benefit from the cost and efficiency advantages
of more integrated FM.
Economic climate
and marketplace
14
Mitie Group plc
13 1
11 12
2
11
Although the UK economy gathered
momentum during 2014 and is
outperforming countries in mainland
Europe, there remain risks to the
economic situation. Growth in
outsourcing has remained relatively flat
over the last year. In general terms, our
industry is slow to enter recession but
also slow to emerge, due to the long-term
nature of outsourcing contracts.
The total UK FM market is valued
at £125bn. At present, an estimated
£75bn is outsourced, £45bn of which
represents our principal addressable
market, defined as contracts worth over
£500,000 per year. We hold a 4% share
of this market. We expect demand for
FM services to grow by up to 2% annually
until 2017, up on the 1.2% annual growth
from 2007 to 2013. The market is
fragmented and dominated by around
120 large providers, with the 12 largest
accounting for 34% of the market.
The markets for individual service lines
are in general led by different specialists
(sources: management consultancy;
MTW Research).
1
13
2
12
3
10
10
Major markets:
Revenue
9
8
5
8
6
4
7
6 5
7
Public sector
3
Major markets:
Sales pipeline
9
4
£0.8bn 36%
Public sector
£4.3bn 44%
1
Central and other government
7%
1
Central and other government
2
Local government
7%
2
Local government
18%
3
Social housing
11%
3
Social housing
15%
4
Healthcare
6%
4
Healthcare
5%
5
Education
5%
5
Education
2%
Private sector
£1.5bn 64%
Private sector
4%
£5.4bn 56%
6
Finance and professional services
17%
6
7
Manufacturing
10%
7
Retail
7%
8
Retail
12%
8
Manufacturing
6%
9
Property management
5%
9
Transport and logistics
10%
10
Technology and communications
6%
10
Property management
10%
11
Utilities
3%
11
1%
12
Leisure
4%
12
Utilities
3%
13
Transport and logistics
7%
13
Leisure
2%
17%
Strategic Report
Market trends
Outsourcing remains a key government
strategy, as both central government
and local authorities continue to adopt
austerity measures. This focus on
costs is creating opportunities for
outsourcing, which is well-established
as a proven route to greater efficiency.
Government procurement is still driven by
price and not quality, which means that
we are selective about the contracts we
are prepared to bid for in the public sector.
The perception of outsourcers is negative
in some quarters, due to significant
bad press in recent years. The task for
those at the quality end of the market,
including Mitie, is to remain vigilant and
to consistently promote the benefits
and quality we bring to our clients and
their customers.
As an industry, FM continues to move
from single services to bundles of
services, with many contracts now seeing
the integration of multiple services across
different and diverse sites.
For both public and private sectors, value
is the watchword and the lack of inflation
means that most organisations are
operating in a zero price rise environment.
In light of the ongoing debate around
minimum wage versus living wage, we
expect employee wages will continue to
be a key area of focus during contract
negotiations. Our view is that great
work deserves decent pay. Our policy
is to offer clients the choice of paying
either current market wage rates, which
may include the minimum wage, or an
alternative outsourcing model to adopt
a geographically appropriate, fair wage.
We are uniquely placed to see the
challenges that many of our people face
in the service industry, and we believe that
fair wages are critical in motivating and
supporting them.
As part of our Executive Relationship
Programme, we continued to develop
‘Mitie Debates’, which aim to more closely
understand trends in the market, and help
to inform and shape the way we work with
our clients and plan for their future needs.
To support this programme we
commissioned another independent
research report, ‘Delivering the vision of
an integrated workplace’, which found
that large corporate organisations are
gradually bringing property, HR, FM
and IT together to provide ‘Workplace
Services’ that recognise new working
practices and the importance of people.
This represents an opportunity for the FM
sector to provide new service solutions
that focus more on supporting people at
work and less on the buildings in which
they work.
To share our research findings and discuss
a range of other industry challenges and
opportunities, we have held a number of
roundtables and discussion dinners that
brought together small groups of property
and facilities directors. Through forums
like this, our clients can share and discuss
their own experiences, innovations and
best practice with their peers from
other organisations.
Another roundtable discussion looked
at how property and FM data could be
used for strategic decision making around
a property estate and to improve the
delivery of FM services. Following this
event, we released a strategy guide
‘Using data to reshape the workplace’
which recognised how the rise in use of
technology has been accompanied by
a rapid increase in data. This has given
FM and property professionals the
opportunity to capture basic property
data on rent, business rates and utility
costs, but also dynamic information on a
vast range of factors, such as how people
are using and moving around the building,
that can help determine the efficiency
and value of each building. With access
to a single view of data across an estate,
the guide highlighted how property
and facilities directors can use this
rich source of information to improve
the management of workplaces and
influence the quality and cost of long-term
occupancy decisions – insight that adds
real value to an organisation.
Governance
Financial
measures, but looked at how many
clients are benefiting from integrated
energy strategies that deliver better
working environments, greater
employee engagement and an enhanced
reputation, in addition to cost and
carbon savings.
Private sector
Mitie remains focused predominantly
on the private sector, and this has been
the primary source of our growth over
the past five years. The market drivers
in the private sector are broadly similar
to those in the public sector – including
the need to reduce costs by outsourcing
non-core activities, while maintaining
and where possible improving service.
We provide services to a wide range of
companies in sectors including finance
and professional services, manufacturing
and leisure. Our performance for the year
has again been led by the private sector,
which accounted for 64% of revenue, and
we expect this trend to continue through
the coming year.
Public sector
We focus on the justice, local government
and health sectors, where we continue
to see a good range of long-term
opportunities. We are highly selective
about the areas in which we bid and
rigorously review pricing and risk transfer.
In 2014, the public sector accounted for
36% of revenue, including 7% from central
and other government.
We still foresee selected opportunities in
the public sector over the medium term.
All governments, across the world and
in the UK, will continue to face pressure
in three key areas: the growing cost of
healthcare and an ageing population; the
need to reduce public debt and spending
deficits; and high expectations of the
quality of public services. Consequently,
we believe the range of outsourcing
opportunities will increase as the private
sector looks to support the public sector
in innovative new models that can
support them with their challenges.
Energy is another key area that impacts
an organisation’s ability to manage
costs and this topic was also explored.
Our strategy guide, ‘Taking an integrated
approach to energy’ investigated how it
is becoming harder to make significant
savings via traditional efficiency
Mitie Group plc
15
Operating review
The shape of
our business today
Facilities Management
2015
Soft FM
Hard FM
Healthcare
£91m
Hard FM
Property
Management
£273m
£1,280.3m £1,190.8m
£621.1m
7.5%
£595.3m
4.3%
£1,901.4m £1,786.1m
6.5%
£81.9m
£74.8m
9.5%
£31.4m
£25.6m
22.7%
£113.3m
£100.4m
12.8%
6.4%
6.3%
+0.1ppt
Operating
profit
margin
Soft FM
H a rd
: £ 1,2 8 0 m
Hard FM
Mitie revenue 2015
F M* : £ 6
So
ft
21 m
FM
£2.3bn
Facilities Management
£1,901m
Facilities Management revenue split
1
2
£1,901m
3
4
5
2015
£m
2014
£m
1
Cleaning and
environmental service
360
363
2
Security
214
216
3
Catering and front
of house
114
76
4
Hard FM
479
463
5
Integrated FM
734
668
* Energy Solutions incorporated in Hard FM
Mitie Group plc
Growth
Operating
profit
Soft FM
16
2014
Revenue
Order
book
5.1%
4.3% +0.8ppt
6.0%
5.6% +0.4ppt
£7.6bn
£7.4bn
2.7%
Our core FM business comprises two
divisions: Soft FM, which includes cleaning
and environmental services, security, and
catering and front of house; and Hard
FM, which consists of a range of technical
and building services. Our integrated FM
offering brings together the full range
of soft and hard FM services in a single
tailored proposition.
There has been a slight change to the
way we report our FM results this year,
with our Energy Solutions business now
incorporated into Hard FM because it
supports the strengths and objectives
of that division.
Strategic Report
Developments during the year
The FM business performed very well
throughout the year, delivering strong
organic growth of 6.1%, through important
contract awards and extensions. The
operating profit margin improved in both
the Soft and Hard FM divisions, reflecting
good market conditions and a continued
focus on operational efficiency.
Client satisfaction is central to our success
and we were rated the top overall service
provider in the FM industry for the second
consecutive year in the 2014 i-FM brand
survey. The same survey also identified
us as the most innovative provider with
the best brand identity, and placed us
either first or second in several of the
service categories, including integrated
FM, technical FM, cleaning and security.
We have made considerable progress
developing our FM business, working
with our clients to deliver both tactical
and strategic support to their activities.
For our largest clients, we utilise our
extensive experience to: provide tailored
consultancy services to support their
strategic objectives; operational solutions
to manage and oversee the demands
of complex and changing estates; and
trained people who carry out day-to-day,
bespoke FM services.
Our ability to deploy such broad expertise
demonstrates our value to clients,
supports the generation of new, profitable
revenue streams and positions us as
a clear leader in our chosen markets.
In addition, the introduction of a wider
mix of service lines has enabled us
to support our margins through the
introduction of consultancy activities
to support our clients’ strategic estate
management objectives, with margins
consistent with those achieved by other
consultancy or professional services
businesses. In the second half of the year,
we have seen a significant contribution
from our consultancy stream in FM,
and we expect revenues in this area to
continue to develop. Our operationally-led,
professional expertise and experience
in FM is highly valued by our clients and
the provision of selected FM consulting
services will also incorporate our activities
from Source8 and Utilyx going forward.
Governance
Financial
Elsewhere, our recent acquisition,
Source8, provides property consulting
services across the globe for a range of
UK, European and US based businesses.
Our Care and Custody business is also
continuing to expand its presence in the
justice sector, where we look after a
number of immigration removal centres.
In 2014, we successfully mobilised our
£180m, eight-year contract to manage
and maintain two immigration centres.
Three years after entering the market,
we are now the largest provider of
immigration detention services to the
Home Office.
The mobilisation process included
merging the two centres into one,
helping two discrete groups of staff
adopt a new operating model based
on a central team, consistent operations
and centralised services such as the
control room.
Our international presence remains
relatively small. In continental Europe, we
support a small number of key clients; in
some countries through a self-delivery
model and in others using supply chain
management. In Ireland, we have made
excellent progress since our entry into
that market in 2010, where our revenues
have trebled over that time. Our catering
business, Gather & Gather, has now
expanded into Ireland and has made
excellent progress with the award of a
number of exciting contracts there during
the year.
Mitie Group plc
17
Operating review
Integrated FM
Key clients
Lloyds Banking Group
Rolls-Royce
Vodafone
Ministry of Justice
BSkyB
Our integrated FM business incorporates
the full range of hard and soft FM
services. During the year it generated
revenue of £0.7bn, a 10% increase on
the prior year.
With the integrated FM UK market
valued at around £22bn, we continued
to prosper and grow, underlining a clear
trend for clients to outsource multiple FM
services to a single partner as it offers
them greater access to value added
advice beyond day-to-day operations.
Our clients see us as their trusted adviser
– we manage all services delivered on
the account and are the single point of
contact from an operational, tactical and
strategic perspective. Delivering over
95% of the services through our specialist
businesses means we also offer our
clients a level of ownership, performance
and value that is a critical differentiator.
Clients also view a provider’s track record
as a way for them to achieve assured
quality and our broad expertise across
multiple sectors has underpinned much
of our success this year. In the financial
and professional sector, in addition
to extending our contract with Lloyds
Banking Group, we were awarded a new
contract with a major insurance and
professional services company. In the
technology and communications sector,
we retained and extended our contracts
with both Vodafone and Eircom.
Expertise in other areas, such as
technology, is also critical to our success.
Investment in systems, such as our
management platform Miworld, has
enabled us to provide greater data and
management information and therefore
insight into strategic decision making
– helping clients reduce total cost of
occupancy while still improving service
quality and responsiveness.
Soft FM
Key clients
Tesco
Co-op
Royal Cornwall Hospitals
St George’s Hospital
First Great Western
We are one of the UK’s largest providers
of cleaning, pest control, landscaping,
waste management and winter gritting,
employing over 30,000 people.
The cleaning business today is more
sector oriented, with a sharp focus
on the transport, commercial, retail,
manufacturing, leisure and health sectors.
The year’s highlights included contract
retentions with clients including Ascot
Racecourse, Standard Life and Heathrow
Airport, as well as new agreements with
Santander and Arriva, where we clean,
fuel and garage 1,600 buses every day.
In the healthcare sector, we secured
major cleaning contracts with Marie Curie,
Hull NHS Trust, Epsom and St Helier
Hospitals, as well as a soft FM contract
with Royal Cornwall Hospitals NHS Trust.
In the retail and consumer goods sector,
our waste management business was
awarded its largest contract to date
with a multinational consumer goods
company, providing services across
22 sites, with a value of £18m over
three years. Our pest control business
also retained its largest contract, with
Sainsbury’s, for a further two years.
Our landscaping business is growing
rapidly; during the year it was awarded
its largest ever contract, as part of the
FM services we will be delivering for
Jones Lang LaSalle.
18
Mitie Group plc
Strategic Report
Governance
Financial
Security
Key clients
Key clients
Hard FM
Heathrow
RBS
Heathrow Airport
Eurostar
Standard Life
Ashworth & Rampton Hospitals
AWE
Channel 4
Tesco
Jaguar Land Rover
Olympia
Jones Lang LaSalle
Eurotunnel
Co-op
BBC Worldwide
We provide customers with total
security management, from traditional
manned security to technology-led
services such as remote monitoring
and pre-employment vetting services.
The addressable market for our services
is around £2.5bn, which is now growing
at approximately 1% per annum following
industry contraction.
With the UK contract catering market
estimated at £4.2bn, our Gather & Gather
catering business continues to thrive
and grow in this market. It has created a
differentiated offer based on innovative,
locally-sourced food and hand roasted
coffee. During the year it was awarded
important new contracts, including with
White Rose, TSB and Gloucester Police.
It also expanded into Ireland, through
contracts with Primark and LinkedIn.
In London, Gather & Gather opened its
first retail café, The Bench, situated in the
new Goldsmiths’ Centre in Clerkenwell.
We deliver a full range of technical and
building services to clients across a broad
range of market sectors. We are the
largest provider of these services in the
UK, employing over 5,000 people in this
area of the business, as well as training
over 120 apprentices at any one time.
We follow a risk-based approach built
on people, technology and consultancy
and see excellent opportunities in
sectors including critical security
environments (CSE), the public sector,
and transport and aviation. In CSE, we
work for risk-averse clients who need
high standards of security, such as
AWE, Cumbrian Collaboration, Lockheed
Martin and BAE. In the public sector,
we gained several new clients, notably
in the health and education sector.
We continue to dominate the aviation
and transport sector, where we work
with clients including Eurostar, Eurotunnel,
Birmingham Airport, airlines at Heathrow
Airport and Virgin Atlantic Airways.
The focus for our events hospitality
business, Creativevents, shifted during the
year, from a predominantly venue-based
operation to an outdoor events business.
Highlights included the Chelsea Flower
Show, the RHS Hampton Court Show,
Royal Ascot Silver Ring and Winter
Wonderland at Hyde Park.
The front of house team made steady
progress during the year, with a regular
flow of contract awards and retentions,
both standalone and as part of our
integrated contracts.
Key clients
Our focus is on building long-term
relationships with clients, managing
and maintaining all of their mechanical
and electrical engineering maintenance
needs. We also provide additional,
critical specialist services, which
extend our offering and bring valuable
new opportunities to the business.
These include heating, cooling, lighting,
fire and security, water treatment,
compliance, building controls, roofing
and projects.
The business performed well during the
year, continuing to grow with existing
clients and building new relationships.
Highlights include maintaining two of
the largest, state of the art, data centres
in the UK and new work awarded with
Heathrow and Gatwick airports, BBC
Worldwide, Turner Broadcasting, Tesco
and AB InBev.
Our lighting business, the largest in the
UK, has had a good year, with demand
for LED lighting projects driving growth in
this area. We utilise the latest technology
to improve visual quality as well as
significantly improving energy savings
and efficiency.
Mitie Group plc
19
Operating review
Our compliance business is one
of the fastest growing in the UK.
Changing legislation means that our
clients need to stay a step ahead, and
we have the broadest range of services
and are the market leaders in our use of
technology in this area.
With energy continuing to be a major
factor for all our clients, our energy
proposition provides the analytics and
solutions that help improve efficiency
and reduce costs. Through our Utilyx
consultancy, we enable clients to take
a more strategic approach to energy
issues, helping them buy better and
use smarter. Utilyx is one of the largest
buyers of business energy in the UK, on
behalf of its clients, making it an energy
partner of choice. In 2014, Utilyx was
named Most Trusted Consultancy and
also Large Consultancy of the Year at
the Energy Live Consultancy Awards.
We are differentiated by our national
scale, but have a focus on local delivery,
enabling us to service both regional and
national clients. We have continued to
invest in technology during the year, for
example market-leading auditing tools
and engineering systems, which allows
us to provide truly integrated, end-to-end
solutions. We have also focused on our
account management capabilities and
our infrastructure, ensuring we continue
to provide quality services and maintain
our proven track record.
20
Mitie Group plc
Property management
Revenue
Operating
profit
Operating
profit margin
Order book
2015
2014
Growth
£273.4m
£264.8m
3.2%
£10.4m
£14.4m
(27.8%)
3.8%
5.4%
(1.6ppt)
£1.0bn
£0.8bn
25.0%
Our Property Management business
serves a wide range of clients in the
domestic housing market, including
housing associations and local authorities,
through long-term contracts.
Whilst the business delivered good
growth in revenues, there was some
pricing pressure in its markets during the
year. We experienced an acceleration
of revenues in the second half of the
financial year and the pipeline of future
opportunities is strong.
Property management works in
whatever way best meets clients’ needs.
This includes via a variety of models such
as bespoke partnering models, strategic
planning, investment consultation and
stock surveys. An increasing number
of existing clients are joining the trend
towards bundled services and we have
also seen a renewed emphasis on the
quality of service delivery.
Although currently the majority of
revenues are derived from the public
sector, the business is moving towards a
sharper focus on the private rented sector,
which currently accounts for 17% of the
UK housing market and is experiencing
high levels of growth.
Over the last 12 months we were awarded
a number of property management
contracts with clients such as Circle
Housing, Orbit, London & Quadrant
Housing Association and A2Dominion,
while retaining key contracts with
clients including Leeds Council and
Sovereign Housing.
We are the market leaders in painting and
repair services, with national coverage,
and during the year we secured new
contracts with Home Group and A2
Dominion, amongst others. We also
provide domestic heating services and
have identified increasing opportunities
to supply boiler replacements, insulation
and associated projects. Our insurance
services business, which performs
repair services on behalf of insurance
companies, has also made good progress
during the year. We anticipate growth
across these service offerings over the
coming year.
Strategic Report
Healthcare
Revenue
Operating
profit
Operating
profit margin
Order book
2015
2014
Growth
£91.4m
£91.7m
(0.3%)
£4.9m
£12.7m
(61.4%)
5.4%
13.8%
(8.4ppt)
£0.4bn
£0.5bn
(20,0%)
We provide homecare (also known as
adult social care) services to people who
require help and support due to illness
or disability, through our MiHomecare
business. We also have Complete Group,
which provides nurse led complex care
solutions in the home. Today, homecare
is in most cases publicly funded and
privately delivered.
The financial performance of this business
has been impacted significantly as a
result of the local authority spending cuts,
which is the primary client base of this
business. In the last year, we continued
to focus resource on branches that
were able to perform to the standards
that we expect and our service users
deserve, and exit regions where local
authority cost pressures are most intense.
The other major short-term challenge in
the homecare market relates to recruiting
and retaining the right number of high
quality care workers. We are investing in
recruitment, training and development
programmes in order to ensure a pipeline
of well-trained, committed staff.
Governance
Financial
Like other developed nations, the UK
has an ageing population, with the
number of over 85s expected to double
in the next 25 years. Homecare services
undoubtedly benefit both the person
receiving care and the body funding
that care: people often prefer to remain
in their own homes whenever possible;
and central government and local
authorities recognise homecare as a
more cost-efficient alternative to care in
hospitals or retirement homes. We expect
this will also drive a long-term trend
towards integrating health and social
care provision.
Growth in the medium to long term will
come from two main sources. Firstly,
our MiHomecare brand continues to win
important new contracts. The second
area where we anticipate growth is in
working with partners such as the NHS
to improve the delivery of public services.
Such partnerships combine the best
of both private and public sectors and
can lead to a marked improvement
in quality accompanied by increased
efficiency and reduced costs. We have
continued to invest in the business with
a view to these medium and long-term
opportunities and during the year, we
were part of the UnitingCare Partnership
which was awarded a contract to provide
older people’s healthcare and adult
community services in Cambridgeshire
and Peterborough.
While the branch closures impacted
our performance during the year, we
are confident of the longer-term growth
drivers in the homecare market, which is
valued at £17bn.
Mitie Group plc
21
New contracts update
Building and creating excellent
client relationships in our
key markets and sectors
This summary shows a selection of contracts that we
have retained, expanded or were awarded during the year.
Private
Client
Timeframe Total value
LinkedIn
A new contract for Gather & Gather to provide
catering services in at LinkedIn’s headquarters
5 years
ND
Vodafone
Retained and extended an integrated FM
contract to deliver services including fabric and
engineering maintenance, workplace
management, security and cleaning across
1,500 Vodafone sites
5 years
£250m
BBC Worldwide
3 years
A new contract delivering the full range of FM
+ 3 years
services including maintenance and repairs, cleaning, + 3 years
catering, security and front of house services at
BBC Worldwide’s new offices in Television Centre,
White City, London
ND
Turner Broadcasting
A new contract to deliver FM services at three of
the broadcaster’s sites, including maintenance and
repairs, cleaning, front of house, waste management
and mailroom services
4 years
Interxion
Awarded a contract to provide a range of security
services to its London data centre campus
3 years
ND
International technology company
Gather & Gather were awarded a new contract
to deliver catering services in the UK and Ireland
3 years
€30–
40m
Private
Transport
Client
£4m
Total value
Heathrow Airport
Expanded existing relationship to provide
security services and hard FM to
Terminals 3, 4, 5, the Heathrow Express and
in the headquarter building, the Compass
Centre and the Heathrow Academy
3 years
£40m
Arriva
Awarded a new contract to clean buses
at depots across the UK
5 years
£20m
Eurostar
Retained a contract to deliver a range
of security services at all UK terminal stations
3 years
ND = not disclosed
Client
Timeframe
Total value
Lloyds Banking Group
Extended transformational partnership delivering
integrated facilities management across the bank’s
entire UK branch and office estate
7 years
ND
Santander
A new contract to provide cleaning services
to around 1,000 branches and banking centres
across the UK
3 years
ND
ND
ND
Bank of America
Retained a contract to provide front of house
services, which includes reception, switchboard,
helpdesk and meeting and event bookings
for the bank at four locations across the UK
3 years
ND
Major high street insurance company
Appointed to provide hard FM services
to the group’s property portfolio
3 years
£6m
Major insurance and professional
services company
Awarded a contract to provide the full
range of FM services at 47 buildings across
the UK and Ireland
5 years
£40m
Standard Life
Retained and expanded a contract to provide
cleaning, gritting, landscaping, pest control
and catering
ND
Timeframe
Total value
5 years
c. £30m
ND
ND
3 years
£6m
30 weeks
£9m
Fujitsu
Retained a contract to provide security services
at over 40 locations in the UK
3 years
ND
Multinational consumer goods company
Appointed to deliver waste management services
to 22 UK sites, including 13 production sites
3 years
£18m
Primark
A new contract delivered by Gather & Gather,
providing catering services in the UK and Ireland
3 years
ND
Sainsbury’s
Retained a contract to deliver pest control
2 years
ND
AB-InBev
Appointed to provide installation,
maintenance and repairs to drinks dispense
equipment in the brewer’s 25,000 outlets
across the UK. This builds on our existing
contract delivering cleaning, security,
catering and technical FM services across
37 European countries
Gunwharf Quays shopping centre
Awarded a new contract to manage the Portsmouth
retail outlet’s guest relations team
Ascot Racecourse
Resecured a cleaning contract, building on our
existing security and events catering offering
Ladbrokes
Awarded the UK’s largest LED lighting project
with the high street bookmaker
22
Mitie Group plc
Private
Retail and leisure
Client
Timeframe
Private
Strategic Report
Jones Lang LaSalle
Awarded a significant new contract to provide
a range of FM services including technical FM
and landscaping services across the group’s
UK property portfolio
Timeframe
Total value
3 years
£85m
Public
Healthcare
Client
Timeframe
Total value
Larchwood Care Homes
A new contract to deliver hard FM services to care
homes across the UK
3 years
£10m
Royal Cornwall Hospitals NHS Trust
Awarded a first-generation outsourcing contract
to deliver soft FM services across three sites
7 years
£90m
Marie Curie Cancer Care
Awarded a contract with Marie Curie Cancer Care
to provide cleaning, laundry and hostess services
for their hospices in the West Midlands and Cardiff
and the Vale
3 years
£1m
Public
Homecare
Client
Public
Education
Client
Timeframe
Total value
Queen Mary University
Awarded a contract to deliver hard FM services
including maintenance and repairs, fire protection,
water treatment and building audit services to 64
buildings over three campuses
5 years
+ 2 years
£5m
3 years
£5m
Durham University
Extended an IFM contract delivering a comprehensive
range of services including cleaning, landscaping,
pest control and security
Financial
Private
Property management
Client
Governance
Timeframe Total value
Surrey County Council
A new contract to deliver homecare services
7 years
£19m
London Borough of Hillingdon
for 300 service users
5 years
+ 1 year
£16m
London Borough of Brent
4 years
£4m
Hampshire County Council
4 years
£4m
London Borough of Redbridge
A new contract to deliver homecare services,
including reablement and complex care
4 years
£3m
London Borough of Hounslow
3 years
£2m
Public
Social housing
Client
Public
Central government
Client
Timeframe
Home Office
Mobilised our contract to manage and maintain
Colnbrook and Harmondsworth detention centres
8 years
£180m
+ 3 years (phase 1)
Total value
Timeframe
Total value
L&Q Housing Association
Resecured a planned works contract to deliver internal
refurbishment works to properties across London
5 years
£9m
A2Dominion
Extended our existing contract to service two
planned maintenance contracts plus a cyclical
decoration and repair works contract covering
their properties in London and the South
2 years
£35m
Circle Housing
Appointed to provide responsive repairs and
maintenance services to customers at Circle Housing
Old Ford, managing 6,500 homes in East London
1 year
£6m
Orbit East and Orbit South
Secured a contract to deliver pre-paint repairs,
redecoration and associated works to approximately
18,000 properties. This is in addition to our existing
work with the client and brings the total contract
value to £157m over eight years
5 years
£5m
Derwent Living
Appointed to carry out internal and external cyclical
decoration, pre-decoration repairs, minor roofing
repairs and small works
7 years
£5m
Home Group
Awarded a painting contract to provide pre-painting
repairs, external refurbishment and internal
redecoration to communal spaces
4 years
£6m
Mitie Group plc
23
Creating a safe and
pleasant environment
g
Royal Cornwall Hospitals NHS Trust
Contract
£90m total value
7 years (+3 year extension)
Commenced 2014
Mitie people
500
Mitie services
Cleaning
Catering
Portering
Waste and recycling
Security
Managing the switchboard
and helpdesk
In October 2014, we started working with the Royal Cornwall Hospitals
NHS Trust, servicing three hospitals in the region: The Royal Cornwall
Hospital in Truro, St Michaels Hospital in Hayle and West Cornwall
Hospital in Penzance. The way we work here is truly innovative. We’ve
introduced a system where patients can choose their meal on a smart
device. We’ve also recently given the retail restaurants a complete
refresh, with a complete new menu serving delicious fresh food. This is
the first time the Trust has outsourced their facilities management so it’s
important we work closely together to make sure that everything runs
as smoothly as possible. We have the Trust’s full support and together,
we are focused on our goal of creating a safe and pleasant environment
for patients, visitors and employees alike.
60,000
patient meals served in the first month
24
Mitie Group plc
Strategic Report
Governance
Financial
We understand risk
g
Source 8
Mitie people
50
Mitie services
Real estate consulting services
and risk management
In November 2014, Mitie acquired a majority stake in Source8.
A leading consultancy, Source8 offers companies pragmatic advice
on how to increase efficiencies and reduce risk when they’re looking
to relocate offices in new markets or just consolidate the spaces they
already use. It does this through optimising their use of land, buildings
and infrastructure, fully understanding the environment they work
in, enhancing the supply chain and helping out local communities.
This partnership enhances our overall offering to clients, combining
Mitie’s technical know-how with Source8’s specialist knowledge and
expertise across a range of sectors and geographies.
50
operating in 50 countries worldwide
Building a long-term
relationship
a
Ascot Racecourse
Contract
£6m total value
3 years
Commenced 2014
Mitie services
Cleaning
Security
Events Catering
Mitie people
Up to 700 per day for Royal Ascot
We’ve been working with Ascot Racecourse since 2011 when we were
awarded a contract for their day-to-day security. This was rapidly
followed by a contract for everyday and race day cleaning as well as
on-site waste management services which we resecured in 2014. When
we acquired Creativevents, our events catering company, later in 2012,
they brought with them a relationship with Ascot that had started in 1997
with a pop-up champagne bar at Royal Ascot. Royal Ascot is of course the
main event at the racecourse, and this year we catered in the Silver Ring,
serving up the best quality local ingredients to 69,400 race goers over five
days. The event was a huge success, with a 31% increase in food sales and
fantastic feedback from customers.
700
up to 700 Mitie people on hand at Royal Ascot
Mitie Group plc
25
Market leaders in
employee screening
a
Procius
Mitie people
87
Mitie services
Security: employee screening
and vetting
Our approach to total security management is based on risk, and for us
the risks associated with the recruitment of staff and related onboarding
process is a fundamental part of protecting our clients’ reputations.
In October 2014, we acquired the pre-employment screening and
vetting company Procius, as a leading supplier of employee screening
and vetting services. Our strength is in pre-employment screening,
competency management and criminal records checking services,
where our meticulous approach has helped us become one of the
UK market leaders.
3,000+
Procius serves over 3,000 customers
26
Mitie Group plc
Strategic Report
Governance
Financial
Putting the ‘care’
in ‘Care & Custody’
g
Heathrow and Campsfield Immigration Removal centres
Contracts
Heathrow IRC
£180m total value
Commenced 2014
Mitie services
Hard and soft FM
Security and guarding services
Educational, recreational,
sporting facilities
Detainee welfare
Religious facilities
Catering and shop services
Voluntary detainee paid
work scheme
Escorting services
Primary healthcare at
Campsfield House
Campsfield House IRC
£25m total value
Commenced 2011
Mitie people
700
In February 2014, Mitie was awarded a contract with the UK Home Office
to manage and maintain the Heathrow Immigration Removal Centre
(IRC). Heathrow IRC is the largest of its kind in Europe, accommodating
over 1,000 detainees. Taking on the contract, in addition to managing
the centre at Campsfield House, makes Mitie the largest single private
sector provider of immigration detention services to the UK Home Office.
The successful mobilisation of Heathrow IRC saw us consolidate two
sites to work under a single operating model, introducing significant
efficiencies to the centre. At Campsfield IRC, we’ve invested over £1.4m
in the contract to improve the quality and facilities at the centre.
Our Care & Custody team looks after all aspects of the everyday
wellbeing of the detainees, which is why strong, open staff-detainee
relationships are so important.
1,300+
we care for over 1,300 people
Mitie Group plc
27
Performance
takes off
a
Heathrow Airport
Contract
£40m total value
A range of 3 year contracts
Mitie people
250
Mitie services
Hard FM
Cleaning
Landscaping
Waste management
Pest control
Security
We’ve provided facilities management services to Heathrow Airport’s
terminal and non-terminal buildings since 2007. Over the last year our
proven track record has helped us develop and grow the contract. We’ve
been awarded a number of additional contracts at Heathrow Terminals 3,
4, 5, the Heathrow Express and in the headquarter building, the Compass
Centre and the Heathrow Academy. Working alongside the Heathrow
team, Mitie embraces a “one team” spirit, ensuring the smooth delivery of
facilities management services across the airport. Our focus is on adding
value – whether that’s through technology, sustainability initiatives or
service quality. We’re proud of our performance, and having grown the
contract in size by 90% over the past two years, scope for further growth
remains. From gritting car parks at 4am, to screening luggage in the
hold, to maintenance within the air traffic control tower, Mitie operates
all across Heathrow and the pipeline of opportunities is strong.
+90% 59m
growth in the contract
in two years
28
Mitie Group plc
passengers passing
through each year
Strategic Report
Governance
Financial
Mitie Group plc
29
30
Mitie Group plc
Strategic Report
Governance
Financial
Creating
a great place
to work
and study
g
Durham University
Contract
£5m
3 year extension
Commenced 2014
Mitie people
100
Mitie services
Cleaning
Landscaping
Pest control
Security
Caretaking
A successful retender in November 2014 helped us to secure an extension
on our contract with Durham University. Mitie was originally awarded
the integrated facilities management contract with the university in
October 2010 to provide a full range of services, and over the past five
years, we’ve developed a firm understanding of the university’s objectives.
To ensure we work together with the university to deliver on its strategic
aims and future FM requirements, we set up a Strategic Board, made up of
members from Mitie and Durham. We’ve introduced the LEAN Six Sigma
concept and implemented better cleaning processes such as the flat mop
system and the use of top of the range equipment to support our efficiency
goals. We’re also rolling out the British Institute of Cleaning Science
training to our teams and have carried out soft services workshops too.
As a result of our efforts, we were awarded the supplier recognition award
by the university’s procurement team in 2013 and 2014, recognising our
commitment to good customer service, innovation and corporate social
responsibility.
17,500
students on site
Mitie Group plc
31
Financial review
Positioned for
future growth
Highlights
£2.3bn +5.8% (Organic: 4.9%)
Headline revenue
(2014: £2.1bn)
£128.6m +0.9%
Headline operating profit
(2014: £127.5m)
5.7% (0.3)ppts
(2014: 6.0%)
24.8p +2.1%
Headline basic earnings per share
(2014: 24.3p)
95.1% (7.3)ppts
Our business has changed fundamentally
over the past ten years. Our revenue has
grown by £1.5bn to £2.3bn through both
strong organic growth and acquisitions.
We have invested in our facilities
management offering to create the
leading integrated FM brand in the UK, to
strengthen our order book and enhance
our margins by exiting our cyclical
mechanical and electrical engineering
and Asset Management businesses.
Our group has delivered strong organic
growth and built an order book of £9.0bn
with a high quality client base. We have
maintained a strong cash performance,
returned £0.3bn in dividends to our
shareholders over ten years and grown
the dividend per share every year.
Headline cash conversion
(2014: 102.4%)
11.7p +6.4%
Dividend per share
(2014: 11.0p)
1.2x
Net debt: Headline EBITDA
(2014: 1.3x)
Headline revenue
£m
2,400
18.6% +1.7ppts
10 Year Compound annual growth rate 11%
Headline return on capital employed
(2014: 16.9%)
2,000
£56.0m (32.2)%
1,600
Statutory operating profit
(2014: £82.6m)
1,200
9.7p (27.6)%
800
Statutory basic earnings per share
400
(2014: 13.4p)
05
32
06
07
08
Mitie Group plc
09
10
11
12
13
14
15
Strategic Report
Organic growth of 4.9%
outperforms the sector
Reshaping our business
for future growth
Headline revenue grew by 5.8% to £2.3bn.
This represented organic growth of
4.9% which outperformed the FM sector
average of 3.1%.
Mitie has a strong track record of
delivering organic growth with an average
of 4.5% over the past five years. This has
been achieved by focusing on our core
facilities management offering both
by winning work with new customers
and expanding our service offering with
existing customers.
%
2011
KPI
2.1
2012
5.4
2013
5.2
2015
4.9
3.1
Sector: Selected FTSE 250 Business Support
Service providers
Strong margins,
growing profitability
Headline operating profit grew by 0.9% to
£128.6m. Our operating profit margin was
5.7%, in line with our target range of 5.5%
to 6.5%. It is our medium term objective to
grow margins above 6.0%.
%
2011
KPI
5.7
2012
6.2
2013
6.1
2014
2015
Exceptional charges in relation
to design and build Asset
Management contracts in
Energy Solutions
2015
£m
2014
£m
15.9
13.6
45.7
25.4
Integration costs
0.6
4.4
Acquisition costs
0.3
0.7
Amortisation of acquisition
related intangibles
10.1
11.0
Restructuring of the Mitie
Group defined benefit
pension scheme
6.0
5.7
Financial
Generating sustainable
shareholder value
–
(10.2)
Total other items before tax
72.6
44.9
Tax on other items
(18.3)
Total other items after tax
54.3
(5.7)
39.2
5.0
2014
2015 sector average
Results relating to the exit of
the mechanical and electrical
engineering business
Governance
We have recognised the impact of a
number of non-recurring and non-cash
items which are separately presented
within Other items. We have incurred
charges as the result of the exit from two
businesses which no longer meet our
growth, risk or return expectations. As a
result, we have repositioned our business
for long term growth.
During the year we completed the exit
from our loss-making mechanical and
electrical (M&E) engineering construction
business with exceptional losses of
£15.9m for the period. In our Asset
Management business, all operational and
financial risk on the remaining design and
build contracts has been assessed and
a charge of £45.7m has been incurred.
Beyond these amounts, no further
exceptional charges will be incurred from
either of these businesses. Further details
of Other items are set out in Note 5 to
the accounts.
Headline profit after tax of £90.0m
resulted in basic headline earnings per
share of 24.8p, an increase of 2.1% on
prior year (2014: 24.3p).
Including Other items, statutory profit
after tax of £35.7m resulted in statutory
basic earnings per share of 9.7p
(2014: 13.4p).
In 2013, the Board approved a share
purchase policy to maintain share
numbers at a broadly consistent level
year-on-year, with the aim of ensuring
that the interests of shareholders are
not diluted by the issue of shares that
support the group’s various share
schemes, nor by the issue of shares as
consideration for earn outs under the
Mitie Model. To this end, in 2015 the
group bought back 3.7 million shares
(2014: 5.8 million) at a cost of £10.7m.
The shares purchased are held in
Treasury. The total number of shares
the group holds in Treasury is 9.5 million.
The average number of shares in
issue in the year was 359.3 million
(2014: 359.9 million).
Headline earnings per share
pence
KPI
2011
22.6
2012
22.8
2013
23.1
24.3
2014
24.8
2015
Mitie Group plc
33
Financial review
Returning cash to shareholders
Return on capital employed
The group has a strong track record of
dividend growth, having consistently
increased dividends annually since the
group was listed on the London Stock
Exchange in 1987 and paid £175m in
cash dividends to shareholders in the last
five years. It is now our policy to grow
dividends at least in line with underlying
earnings. This year’s cash returns to
shareholders fully reflect our continued
confidence in the business and have
not been discounted by the impact of
non-recurring charges and additionally
reflect growth of 6.4% compared with
growth in headline basic earnings per
share of 2.1%. The full year dividend
recommended by the Board is 11.7p per
share (2014: 11.0p per share), reflecting
a cover of 2.1x (2014: 2.2x) headline
earnings per share.
Our return on capital employed (ROCE)
for the year is 18.6%. ROCE is calculated
as headline operating profit after tax
(adjusted for the proforma, full year
effect of acquisitions) divided by capital
employed. Capital employed is calculated
as net assets excluding net debt less
non-controlling interests.
During the year, total dividends of
£40.5m were paid to shareholders
(2014: £38.1m).
2012
2013
2014
2011
9.0
2012
16.6
16.5
2015
10.3
11.0
11.7
Mitie Group plc
16.8
2013
2014
9.6
2015
34
Our ROCE demonstrates our ability
to generate returns from the capital
employed by our business. We focus
on our ROCE through the management
of our asset base and profit streams
and take into consideration returns on
capital when we invest to maximise the
profitability of the group. By generating
returns that exceed our weighted average
cost of capital, currently 7.4%, we are
ensuring that our investment decisions
add value to our business.
ROCE
%
Dividend per share
pence
2011
Balance sheet
16.9
18.6
2015
£m
2014
£m
541.0
538.9
53.3
56.7
Net working capital
(48.5)
(27.8)
Net debt
(177.8) (186.6)
Goodwill and other
intangible assets
Property, plant
and equipment
Other
Pensions
Net assets
46.1
(35.8)
378.3
41.8
(19.1)
403.9
At 31 March 2015, the Group had
£378.3m of net assets.
Goodwill and other intangible assets of
£541.0m are held on the balance sheet.
In relation to net assets, this profile is
typical of our sector, which is people
based and low in capital intensity, and of
businesses growing through acquisition.
Details of the group’s goodwill are set out
in Note 13.
Our group has a limited requirement
for investment in property, plant and
equipment and accordingly capital
expenditure as a percentage of revenue is
1.0% and is expected to remain close to 1%
going forward. Our principal investment
requirement in capital terms is in working
capital. Working capital management
is a key focus for the group.
Strategic Report
Our revenue has grown by over 30% in
the past five years to £2.3bn. Our working
capital balances have been managed to
stay in line with the growth of our business
and working capital investment has
remained relatively constant.
cash conversion of 80% which we have
consistently exceeded over the past
five years. This year, headline cash
inflows from operations were £144.6m
(2014: £152.4m), representing headline
cash conversion of 95.1% (2014: 102.4%).
Short-term working capital balances
at 31 March 2015 were £(48.5)m or
£10.0m after the inclusion of non-current
trade and other receivables. The net
working capital outflow per the cash flow
statement of £2.6m reflects our ongoing
focus on working capital management.
On a statutory basis, cash conversion was
126.5% (2014: 107.3%). The consistency
of our cash generation has been a key
feature of our results and remains a major
focus going forward.
Inventories
Current trade and
other receivables
Current trade and
other payables
Current provisions
2015
£m
2014
£m
11.0
7.4
Conversion of statutory
EBITDA to cash
%
2011
2012
421.4
491.6
(4.9)
(1.2)
Short-term working capital
(48.5)
(27.8)
Non-current trade
and other receivables
58.5
41.2
Working capital
10.0
13.4
Excellent cash conversion
Our profits are strongly backed by cash
flows. Cash conversion measures our
success in converting operating profit
(measured by earnings before interest,
tax, depreciation and amortisation
‘EBITDA’) to cash and reflects both
the quality of our earnings and the
effectiveness of our cash management
activities. As a key indicator of our
business performance, we target headline
86.7
83.7
127.8
2013
2014
(476.0) (525.6)
KPI
2015
107.3
126.5
Net debt
As at 31 March 2015, net debt was
£177.8m, a reduction of £8.8m on
the prior year. Strong free cash flow
of £57.5m has enabled us to return
£40.5m to shareholders through growing
dividend payments.
We remain comfortably within each of our
banking covenants. As at 31 March 2015,
net debt stood at 2.0x statutory EBITDA
(2014: 1.6x) and 1.2x headline EBITDA
(2014: 1.3x).
Governance
Financial
Committed facilities
to fund future growth
2015
£m
Tenure
Syndicated revolving
credit facility
275
July
2019
US private placement
loans notes
252
2017–
2024
Committed facilities
527
In July 2014 the group completed a
refinancing of its revolving credit facility
through a syndicate of six banks which
secured facilities for a further five years
at margins favourable to the previous
facility. The group now has committed
funding of £527m in place to support
our future growth opportunities.
Our interest rate exposure is
predominantly fixed, at around 4%
per annum.
The group has a centralised treasury
function whose principal role is to ensure
that adequate liquidity is available to
meet funding requirements as they
arise, and that financial risk is effectively
identified and managed. Treasury policies
and procedures are approved by the
Board. No transactions of a speculative
nature are undertaken. Dealings are
restricted to those banks with suitable
credit ratings and counterparty risk and
credit exposure is monitored frequently.
Mitie Group plc
35
Financial review
Acquisitions
During the year we acquired two
businesses which added £10m to group
revenue and £2m to group operating
profit on a pro forma basis.
On 16 October 2014, we acquired
Procius Limited, the leading UK
pre-employment screening company,
for total consideration of up to £2.3m.
On 26 November 2014, we acquired a
51% stake in Source Eight Limited, a real
estate, technology and risk management
consultancy for a maximum initial
consideration of £2.95m. Further cash
consideration may be payable in respect
of put options over the remaining 49%
stake bringing total consideration for a
100% stake to a maximum of £15.5m.
At 31 March 2015, a liability of £8.0m
has been recognised in respect of the put
options which are potentially exercisable
in tranches between 2017 and 2019.
From the date of ownership, the acquired
businesses have contributed headline
revenue of £3.7m and headline operating
profit of £0.6m to the group, which is in
line with our expectations.
Driving entrepreneurialism
through equity participation
Mitie operates an entrepreneurial
investment programme known as the
Mitie Model. Investment companies are
structured so that the management
team takes an equity stake of up to 49%
in a business which they grow over a five
to ten-year period, and may eventually
be acquired by Mitie in full, should the
acquisition criteria in the respective
Articles of Association and shareholder
agreements be met. Mitie has supported
over 100 start-up businesses to grow
using the Mitie model. Currently, Mitie
holds majority interests in 11 Mitie Model
companies with a carrying value of £3.3m.
On 30 January 2015, Mitie Group plc
acquired the remaining 49% share
in Direct Enquiries Holdings Limited.
The total consideration was £5.6m being
satisfied by £1.8m in cash paid during the
year and £3.8m paid in cash in April 2015.
This purchase and other acquisitions are
discussed in more detail in Note 32 to
the accounts.
36
Mitie Group plc
Tax contribution
Our tax strategy is to manage all taxes,
both direct and indirect, such that we pay
the appropriate amount of tax in each
country whilst ensuring that we respect
the applicable tax legislation and utilise,
where appropriate, any legislative reliefs
available. This tax strategy is reviewed,
regularly monitored and endorsed by
the Board.
Mitie is a significant contributor of
tax in the UK, paying £522m in 2015
(2014: £599m). This comprised £15m of
UK corporation tax and £507m of indirect
taxes including business rates, VAT and
payroll taxes paid and collected.
The group’s headline tax charge was
£24.1m (2014: £25.6m). The effective
headline rate was 21.1% for the year
(2014: 22.6%). As Mitie is predominantly
UK based, our effective rate of tax reflects
the UK statutory rate of tax.
After adjusting for the tax credit on
other items of £18.3m (2014: £5.7m),
the statutory income tax charge was
£5.8m (2014: £19.9m), an effective rate
of 14.0% (2014: 29.1%).
Strategic Report
Pensions
Our financial strength and balance sheet
remain unaffected by any significant
pensions deficit, with the net deficit of all
the defined benefit pension arrangements
included on the balance sheet being
£35.8m (2014: £19.1m).
During the year we completed the
actuarial triennial valuation of the Mitie
Group scheme. The scheme actuarial
deficit was £6.0m at 31 March 2014.
We have agreed with the trustees that no
cash injection into the scheme is currently
required, but have committed to potential
cash injections of up to a total of £11m
over ten years should the funding position
deteriorate materially.
The accounting deficit on Mitie Group
plc’s principal defined benefit scheme
at 31 March 2015 was £34.9m
(2014: £17.0m), reflecting a reduction in
bond rates. The performance of scheme
assets has, however, remained strong in
the year; the scheme has also benefited
from the positive impact of amendments
made to the terms of the Mitie Group
defined benefit pension scheme during
the previous year.
The group also makes contributions
to customers’ defined benefit pension
schemes under Admitted Body
arrangements as well as to other
arrangements in respect of certain
employees who have transferred to the
group under TUPE. Mitie’s net defined
benefit pension obligations in respect
of schemes in which it is committed to
funding amounted to £0.9m (2014: £2.1m).
Statutory and non-statutory
measures of performance
Our financial statements contain all the
information and disclosures required by
the relevant accounting standards and
regulatory obligations that apply to the
group. We have elected to provide some
further disclosures and performance
measures in order to present our financial
results in a way that best demonstrates
the performance of our business.
The results described as ‘headline’
report the performance of the trading
activity of our core business along
with the central overhead required
to manage the group. The headline
measure illustrates the performance
of the underlying activities of the group,
and is a non-statutory measure.
Governance
Financial
These items are described as Other
items within the income statement and
in related parts of this Annual Report and
Accounts. The Other items measure of
our results is a non-statutory measure.
In the current year, Other items comprise:
a The results of the mechanical and
electrical engineering construction
business we have exited
a Exceptional charges in respect
of design and build Asset
Management contracts
a Acquisition related charges, including
amortisation of acquisition related
intangible assets
The sum of the headline and other
items columns are the statutory
reported results of the business and
reflect the full trading result of the
group, reported in accordance with IFRS.
This presentation is consistent with the
way in which we manage and report on
our business internally and is consistently
applied to assist in the explanation
of our performance.
Suzanne Baxter
Group Finance Director
We have separately disclosed any
restructuring and acquisition-related
items together with the results of the
engineering construction and Asset
Management businesses, which we
have exited.
Mitie Group plc
37
Principal risks and uncertainties
Identified principal risks to the achievement of our strategic business objectives are
outlined in the section below, together with their potential impact and the mitigation
measures in place. The Board believe these risks to be the most significant with the
potential to impact our strategy, our financial and operational performance and,
ultimately, our reputation. There may be other risks which are currently unknown
to the group or which may become material in the future. Our key risk categories
continue to be: strategic, financial, operational, and regulatory.
Strategic risks
Risk
Mitigation
Central to achieving our strategy is the successful delivery of our
contract portfolio, particularly our large scale, complex integrated
FM contracts. Our strong financial position relies on our ability to
successfully bid, mobilise, operate and manage such contracts.
We see an increasingly complex service offering as a business
differentiator to our clients, supported by more sophisticated and
complex technological solutions. When compared to our more
traditional business activities, these solutions necessarily carry
increased risk around bidding, design, delivery and successful
implementation. Winning new and retaining existing contracts
of this nature continues to be critical for the future success of
our business.
Our bid, mobilisation and contract management processes
operate under strict delegated authorities and are subject to
rigorous executive management oversight and approval for the
large and complex integrated FM contracts. These contracts
are supported by teams of experienced bid, mobilisation and
operational delivery specialists to mitigate the risk of failure at any
stage. On-going contract assurance occurs together with regular
client dialogue to ensure service delivery remains in line with the
client’s expectations. Through these activities we aim to develop
long term client relationships, supported by a strengthened
framework to retain our existing client base.
Company
performance
and resourcing
requirements
impacted by
change to the
market and
economic
conditions
The UK market remains our principal macro-economic exposure,
with only very limited exposure to the wider global economy.
We anticipate a continued improvement in the pipeline of new
opportunities and so our business model needs to adapt and grow
with any on-going economic upturn. Our ability to recognise and
respond to variations in the volume, value and range of services
required, particularly from our private sector clients, may impact
the Group’s ability to win or retain significant business opportunities.
Resilience is provided by our diverse business portfolio during
times of economic change, with varying demands on our resources
dependent on the way in which our client base responds to the
economic cycle. We are well placed to adapt to any policy changes
from the Government.
We continue to be focused on the delivery of sustainable, profitable
growth and during the year we completed our exit strategy
from more cyclical, complex, margin-diluting markets and have
de-risked the business as a result. We continue to strategically
target growth areas with good margins, underpinned by the right
supporting business infrastructure and our financial exposure to
rapid changes in the economic environment is mitigated through
the continued development of our long term diverse contract
portfolio. Formal control occurs over entry into new business areas
and is subject to Board approval.
Protecting
our
reputation
Maintaining a strong reputation is vital to our success as a
business. A loss in market confidence in our ability to maintain
current business or undertake new client opportunities may be
caused by an adverse impact to our reputation which may, in
turn, significantly affect our financial performance and growth
prospects; this is particularly the case in our public sector contracts
where the need for transparency is paramount. Significant impact
to our reputation could be caused by any incident involving major
harm to one of our people or our clients/partners, corrupt practices
involving fraud or bribery, inadequate financial control processes
or failure to comply with regulatory requirements. Impacts of
this type would potentially result in financial penalties, losses of
key contracts, an inability to win new business and challenges in
retaining key staff and recruiting new staff.
The basis for effective reputational management is a strong
corporate governance framework supported by clear and
demonstrable values and behaviours, clearly communicated at
all levels of our business. Our governance and ethical business
frameworks provide a set of linked policies, procedures, training
programmes and audits, all centred on our code of conduct (One
Code), to address specific issues which, if realised, may give rise to
reputational impact. These frameworks were further strengthened
in 2014/15 to ensure our people are aware of their responsibilities.
A strong and consistent ‘tone from the top’ is provided by our senior
management to ensure our values and expected behaviours are
clear and understood by everyone. We have also strengthened
our public relations and external communications programme to
ensure a fair and balanced view of our services is provided to our
clients and other interested parties. As our business continues
to grow and develop into new sectors we will remain strongly
focused on protecting the strength of our reputation through
effective governance, leadership, the continued enhancement
of our ethical business framework, and through maintaining
open and transparent relationships with all stakeholders.
Contract
bidding,
mobilisation
and
management
Investment and support for the development and deployment of
technical solutions is governed by our Board to provide assurance
on their on-going performance.
Financial risks
Financial
strength and
access to
appropriately
scaled and
diverse sources
of funding
38
Risk
Mitigation
Our financial strength makes us an attractive partner to our clients
and stakeholders (including our funding partners).Our ability to
grow if our financial performance deteriorates, by weakening
profitability and limiting our ability to access diverse sources of
funding on competitive terms, causing an increase in the cost of
borrowing or cash flow issues which could, in turn, further affect
our financial performance. As a people business staff costs remain
our most significant area of expenditure. Our ability to pay our
people and suppliers regularly and at specific times relies upon
funding being continually available and, in particular,our ability
to manage our cash flow and working capital exposures.
We have mature financial governance arrangements in place,
providing oversight and monitoring of our financial performance
including daily monitoring of bank balances, cash flow reporting
on a daily and weekly basis and regular financial performance
and balance sheet reviews, which include detailed working
capital reviews. We have strong banking, debt finance and
equity relationships, a diverse committed long term funding
portfolio and appropriate levels of gearing for our business.
Mitie Group plc
Strategic Report
Governance
Financial
Financial risks
Reliance
on material
counterparties
We depend on a number of significant counterparties such as
insurers, banks, clients and suppliers to maintain our business
activities. The failure of a key business partner, supplier,
subcontractor, financer or other provider could materially affect
the operational and financial effectiveness of our business and our
ability to trade. Ensuring on-going relationships with our material
counterparties will underpin the Group’s ability to meet its strategic
objectives. Lloyds Banking Group is a material counterparty to the
Group, providing both banking facilities and being our largest client,
accounting for 7% of the Group’s revenue.
We are limited on the dependency of any one counterparty
and hence the impact of any potential failure, through strategic
development of a diverse and robust counterparty base. The
Board undertakes a formal review of material counterparty risk
at divisional and business level.
Operational risks
Risk
Mitigation
Significant
health,
safety or
environmental
incident
Due to our diverse operational portfolio, the potential to cause
significant harm to our employees, our business partners,
members of the public, or to damage the environment will always
exist. We have an unwavering commitment to safeguarding our
people and protecting the environment wherever we operate.
Failure to maintain our high standards could result in a significant
incident affecting an employee, their family, friends or colleagues
or lead to regulatory action, financial impact or damage to
our reputation.
The Board, through effective governance, oversight and
management standards maintains its commitment to the highest
standards of quality, health, safety and environmental (QHSE)
performance, which remains the first item on every Board agenda.
Our performance is achieved through two cornerstones, QHSE
management systems and employee engagement. Our well
established management systems are certified to the ISO 9001,
14001 and OHSAS 18001 standards, and our Work Safe Home
Safe! programme is central to achieving employee engagement,
having been revised and strengthened during the year. To support
our management system and engagement programme we focus
on developing training programmes to ensure every employee, at
every level of the business, has the core competencies required
to do their work safely. We have a network of dedicated and
experienced QHSE professionals who strive to deliver continual
improvement in support of the operational delivery of our services.
System,
process
or control failure
may impact our
operational
performance
Sophisticated, interdependent business systems underpin
our operations. Such systems form the basis for our contract
management and business support activities and we foresee
increasing future reliance on such capability. These systems,
in conjunction with our governance framework of policies and
procedures, will help to drive innovation in customer requirements,
improve our operational efficiency and provide the foundation of
our business support functions. As such they remain critical for
the control and success of the business and the achievement of
our strategic aims.
The basis of our governance framework is provided by our core
policies, which are subject to continual review and optimisation to
manage our growing and diversifying business requirements in line
with sound governance practice. Our internal control effectiveness
continues to be reviewed formally, supported by a programme
of internal audits and self-certification on the operation of key
controls and procedures.
Operational failure may result in a significant impact on operational
delivery, contract management and client expectations due to
the business critical nature of these systems. System failure
could also result in a breakdown in the controls around high
volume transactions and compliance areas such as vetting and
employment legislation. Financial or other misstatements, fines
through statutory non-compliance issues and loss of client and/or
regulator confidence could occur as a result.
Attracting
and
retaining
skilled
people
Attracting and retaining the best skilled people at all levels of the
business is critical. This is particularly the case in ensuring we have
access to a diverse range of views and experience and in attracting
specific expertise at both managerial and operational levels where
the market may be highly competitive. Failure to attract new talent,
or to develop and retain our existing employees, could impact our
ability to achieve our strategic growth objectives. As we continue
to grow and diversify into new areas, this risk will continue to be
a focus for the Board.
Formal testing of our business critical systems occurs to ensure
effective recovery following a potential disaster scenario and we
have in place an assurance programme to test the adequacy of
our mitigation activity. IT related governance oversight is provided
by the IT steering group (compromising senior management)
who continue to monitor the effectiveness of the information
security management system, which is aligned with recognised
international standards.
To ensure a pipeline of opportunities exist for staff at every level
of the business our career development and talent management
programmes are a key focus for our management teams.
Additionally, to ensure a talent pool is identified, developed and
ready for succession if needed, succession plans exist for key
management. We are also aiming to develop the next generation
of leaders via our graduate programme. Our focus on training and
competency at all levels of the business continues to ensure that
we develop our people and enable them to successfully manage
the changing profile of our business.
Regulatory risks
Non-compliance
with the
developing
regulatory
framework
Risk
Mitigation
As a major employer, further development of the regulatory and
legal framework in areas where we work may have a material
financial and reputational impact on the business. As such we
continue to provide a strong focus on ensuring, as a minimum
requirement, legal and regulatory compliance in all of our business
areas, in particular where we enter into new areas. Failure to
achieve this could lead to enforcement action, fines, adverse
publicity and therefore potential damage to our reputation, all of
which would threaten the ability to achieve our strategic objectives.
A key element of our management system is the legal compliance
framework, developed to ensure proactive identification of legal
and regulatory requirements in our diverse range of business
areas. Our operational teams remain primarily responsible for
ensuring legal compliance, supported by experienced teams
of functional experts and backed up by our assurance teams.
Where required we obtain specialist technical advice to support our
in-house teams. We continue to proactively monitor the developing
regulatory framework to plan and budget for on-going compliance.
Mitie Group plc
39
Sustainability
Our sustainable
business strategy
Code of conduct
Our business strategy explicitly aims not just for growth,
but sustainable growth.
People are the single factor that makes
Mitie such a compelling partner for
organisations. Passionate and skilled, our
people are also determined to ‘do the right
thing’ at all times, and during the first half
of the year we produced a new code of
conduct to support them.
A responsible company is one that will
succeed and continue to grow, and that is
why a strong code of conduct is critical to
how we work. It provides our people with
the guidance and support necessary to
carry out their work in the right way.
It rests on six pillars – and delivering each of those depends
on having a sustainable mindset – seeking to deliver value
not just for shareholders in the short term, but for all stakeholders
over the long term.
We know from experience that we can only achieve our business
goals, and deliver financial returns, by having the best relationships
possible and managing resources thoughtfully, looking for new and
better solutions.
Sustainable, profitable growth
Delivers
Our business goals
People
Clients
Develop the
best talent at
every level of
our business.
Provide worldclass services
to attract
new clients
and retain
and expand
contracts with
existing clients.
Operational
excellence
New markets
and services
Deliver
market-leading,
innovative
services with
maximum
efficiency.
Develop
our service
capability in
our current
markets and in
markets that
offer attractive
growth
opportunities.
Risk
Responsibility
Manage risk
and protect
our business
and brand.
Take a
long-term
view by acting
responsibly.
Sustainable working
40
We retain
clients by
sharing our
experiences,
partnering and
helping them to
be successful
every day That
in turn makes
us successful.
Sustainable
approaches like
cutting energy
consumption
help our clients
reduce costs,
benefiting
their business
– and ours.
Mitie Group plc
A greener
economy is
an opportunity
to offer new
products
and services
– like waste
and energy
management.
Incorporated within its guidance and
principles, the Code outlines our zero
tolerance policy against unsafe and
unethical working practices. We are
strongly against unsafe working practices,
discrimination on any grounds – including
race, gender, religion and age, bullying and
harassment, bribery and corruption and
retaliation against those who speak up.
We take all breaches in best practice very
seriously and encourage our people to
speak up whenever they witness anything
unsafe or unethical. We’ve set up an
independent hotline to deal solely with this
and have a team in place who are on hand
to listen and offer confidential advice to
individuals who raise any issues with us.
Our position on human
rights issues
Delivers
Attracting and
retaining people
is not just about
money but
about valuing
them and
giving them
opportunities.
If they’re happy
and productive,
so are we.
The Code promotes our core values
and the responsible behaviours that
underpin them. It provides guidance and
support for our people when undertaking
their work and draws together all of our
longstanding policies and procedures
from across our business into one simple
and practical guide. Every Mitie person
has access to the Code and is encouraged
to understand the importance of following
its principles at all times.
Good risk
management
depends on
being alert not
just to financial
risks but to the
full range of
environmental,
social and
governance
trends, so we
can future proof
our business.
We set targets
in key areas
like diversity
and emissions
reduction. Being
responsible
helps us to
deliver all our
other goals by
making us
a business
people want
to work with.
Mitie is committed to the UN Guiding
Principles on Business and Human Rights
and International Labour Organisation
convention. Protecting and preserving
human rights in every territory we
operate in is embedded in our culture
and fundamental to our Company values.
This is reflected in our policies and actions
toward our employees, suppliers, clients
and the communities and countries where
we do business.
Strategic Report
Governance
Financial
Our sustainability targets for 2020
On track
Work to be done
Last year we set ourselves aspirational targets to be achieved by 2020. The table below
shows progress on those targets at a very high level – for the details of our performance,
including highlights and challenges, go to www.mitie.com/sustainability for the full report.
aImprove client satisfaction to achieve
a Net Promoter Score of 25%
Progress
Our Net Promoter Score is 20%
which is a 2% increase on last year.
aAchieve 90% employee engagement
based on Mitie’s proprietary model
Progress
Our score this year, based on an employee survey
is 74%. This is an increase of 2% on last year.
aEmbed diversity in all our practices
(achieve 90% diversity score based
on Mitie’s proprietary model)
Progress
Our community investment for the year 2014/15
represents 0.8% of our pre-tax profit which is fantastic
news and we are looking to build on this progress
next year.
aReduce our carbon footprint by 35%
Progress
Progress
So far we have achieved a 26% carbon
footprint reduction.
aEmbed our values and beliefs
into our supply chain
We calculate this by using the responses to our
engagement survey. The statement “I feel that Mitie
values people’s differences” scored 79%. This is an
increase of 7% on last year.
aEmbed our key Work Safe Home
Safe! behaviours
aDedicate 1% pre-tax profit to
community investment, through
the Mitie Foundation activities
Progress
We continue to work with all our suppliers,
collaborating with them to embed our values and
achieve sustainable improvements that benefit
them and us, as well as our clients.
Progress
In our last sustainability survey 94% of employees
said they were aware of the programme, which is
unchanged from last year.
Resource
Units
2014
2015
% change
against
baseline
Scope 1
Gas and fleet fuel
Tonnes of CO2e
41,343
42,075
41,090
-1%
Scope 2
Electricity
Tonnes of CO2e
3,490
3,223
2,938
-16%
Scope 1 and 2
Intensity
Tonnes of CO2e/employee
0.79
0.63
0.63
-20%
Intensity
Tonnes/£m
26.07
20.39
19.36
-26%
Scope 3
Energy and business car travel
Tonnes of CO2e
4,564
10,455
7,411
Upstream
Water
Tonnes of CO2e
10
12
12
15%
Created waste
Tonnes
1,436
1,536
1,503
5%
2010
restated
baseline
62%*
Intensity
Tonnes/employee
0.025
0.021
0.022
-15%
General waste
Tonnes
989
793
792
-20%
Recycled waste
Tonnes
447
743
711
59%
31
48
47
52%
% recycled
Directors
of the parent
company
Senior
managers of
the Company**
Employees
of the
Company
2
109
33,462
women
women
women
0
449
36,095
men
men
men
You can read more about what
we’re doing in all of these areas and
see our latest performance data at:
mitie.com/sustainability
* Variance to the base year due to the integration of MiHomecare
** Defined as employees earning >£60,000 per annum
Mitie Group plc
41
Board of Directors
Roger Matthews
Non-Executive Chairman
Chief Executive
Chairman of the Nomination Committee
Member of the Remuneration Committee
Chair of the Results and Investment Committees
Roger was appointed as a Non-Executive Director of Mitie in December
2006 and was appointed as Non-Executive Chairman in July 2008. He was
previously Non-Executive Chairman of Pertemps Network Group Limited
and LSL Property Services plc and held the roles of Group Finance Director
of J Sainsbury plc, and Group Managing Director and Group Finance Director
of Compass Group PLC.
Ruby joined Mitie in December 2002 and was appointed as Chief Executive
in April 2007. Ruby has extensive experience within the support services
sector where, prior to joining Mitie, she held a range of senior roles, primarily
at Serco Group plc. Ruby is the Senior Independent Non-Executive Director
of Michael Page International PLC, appointed to the board in May 2007, and
is also a member of their Nomination and Remuneration Committees. She is
a Non-Executive Director of the Department of Culture, Media and Sport.
Ruby’s charitable and community interests include acting as Chair of the
Confederation of British Industry’s Public Services Strategy Board, Chair
of the Women’s Business Council, and Business Ambassador for UK Trade
and Investment.
Suzanne Baxter
David Jenkins
Senior Independent Director
Member of the Results and Investment Committees
Chairman of the Audit Committee
Member of the Nomination and Remuneration Committees
Suzanne was appointed as Group Finance Director of Mitie Group plc in
April 2006. Suzanne is a Chartered Accountant with a wealth of experience
in the support services sector. Prior to joining Mitie, Suzanne specialised in
mergers and acquisitions related transaction support and held a number
of commercial and operational roles with Serco Group plc. Suzanne is
a Non-Executive Director of WH Smith PLC, where she is also Chair of
the Audit Committee and member of the Nomination and Remuneration
Committees. She is Chairman and a member of the Counsel of the Business
Services Association, a policy and research centre of excellence for the
support services industry, and Chair of the Business in the Community (BITC)
South West Strategic Advisory Board. She was previously Deputy Chairman
of Opportunity Now, a part of the BITC organisation, with a focus on gender
diversity in the workplace.
42
Mitie Group plc
David was appointed as a Non-Executive Director in March 2006 and is
currently the Senior Independent Director. David was previously a senior
partner with Deloitte LLP in London having spent over 20 years in Assurance
and Advisory Services. He is Chairman of Development Securities PLC and
a Non-Executive Director of Renewable Energy Systems Holdings Limited.
Strategic Report
Governance
Financial
Larry Hirst CBE
Crawford Gillies
Independent Non-Executive Director
Member of the Audit
Nomination and Remuneration Committees
Member of the Audit
Nomination and Remuneration Committees
Larry was appointed as a Non-Executive Director in February 2010. Until his
retirement from IBM in 2010, Larry was Chairman of IBM (EMEA) and held a
number of other senior positions during his 33 year career with IBM. Larry is
a Non-Executive Director and Chairman of the Remuneration Committee of
ARM Holdings plc, he is also Chairman of the Imperial College Data Science
Institute Advisory Board. His community interests include acting as an
Ambassador to Everywoman, Black British Business and POWERful Women.
Crawford was appointed as a Non-Executive Director to the Board in
July 2012 and was Chairman of the Remuneration Committee from
November 2013 to September 2014. He spent 25 years with Bain & Co., the
international management consultancy, where he was Managing Director
Europe. He was appointed to the Board of Barclays plc in April 2014 and
is Senior Independent Director of Standard Life plc. Crawford is also the
Chairman of Scottish Enterprise and Control Risks Group.
Jack Boyer
Chairman of the Remuneration Committee
Member of the Audit and Nomination Committees
Jack was appointed as a Non-Executive Director to the Board in June
2013 and Chairman of the Remuneration Committee in October 2014.
He is Chairman of Ilika plc and a Non-Executive Director of Laird PLC
where he chairs the Remuneration Committee. He also sits on the board
of the Engineering and Physical Sciences Research Council and is Deputy
Chair of the Advanced Materials Leadership Council. A serial entrepreneur,
he previously founded and was CEO of companies in the engineering,
telecommunications and biotechnology sectors. He has been an investment
banker at Goldman Sachs and strategy consultant at Bain & Co.
Mitie Group plc
43
Chairman’s introduction to Corporate Governance
The Board is ultimately responsible to shareholders and other stakeholders for the group’s activities and its long-term success.
The value of good governance is recognised by the Board as an area of great importance and, in this governance report, we
explain how the main principles of good governance are applied across the group. It also describes how the governance framework
implements the UK Corporate Governance Code 2012 (the ‘Code’). The Board acknowledges the changes in corporate governance
set out in the UK Corporate Governance Code issued in September 2014 (the ‘2014 Code’) and is actively considering its implications
for the governance of the group.
Compliance with the Code
I can confirm on behalf of the Board that the group has complied with the main principles and all the relevant provisions set out in the
Code throughout the year. Details of how we have applied the principles and complied with the provisions are explained throughout
the report. The Code and the 2014 Code can be found on the Financial Reporting Council website at www.frc.org.uk.
The Board considers that throughout the year sufficient time has been spent reviewing and discussing strategy, risk, financial
performance, investor communication and engagement, and key matters of governance both at the Board and the Committee
meetings. An overview of the activities and the effectiveness of each of our Board Committees is explained further on pages 48
to 56.
Key areas of governance that have been reviewed in the year include:
Ethics, compliance and code of conduct
During the year the group has strengthened its existing policies and programmes which form the current ethical business framework.
This included the development, implementation and embedding of a Code of Conduct (One Code), launched in July 2014, which
provides clear expectations for all employees on behaviours and alignment with the group’s core values. The One Code can be found
on our website at http://www.mitie.com/about-us/our-culture/one-code-our-code-of-conduct.
In addition, enhancements have been made across the group in support of One Code, including assurance of core policy compliance
and of the whistle blowing service.
Board composition
As a Board, we are keen to ensure that a balance of views is available and that the right decisions are taken. Our Board comprises
directors with a breadth of professional and sector experience from various backgrounds. As a result we have a balanced Board
with the right range of skills and experience to contribute to and, where appropriate, challenge decision making.
During the year Jack Boyer was appointed as Chairman of the Remuneration Committee. Crawford Gillies will step down from the
Board at the AGM in July. Crawford will have been on the Board for three years, for a part of which he chaired the Remuneration
Committee. We would like to thank Crawford for his contribution.
David Jenkins will retire from the Board in December 2015. He will step down as Chairman of the Audit Committee and Senior
Independent Director at the AGM in July. We would like to thank David for his contribution to date, and for his commitment to the
group by continuing on the Board to ensure a smooth transition to each of his successors. Larry Hirst, who has been a Non-Executive
Director for the past five years, will be appointed Senior Independent Director upon David stepping down at the AGM.
Mark Reckitt will be appointed as a Non-Executive Director of Mitie with effect on 1 July 2015, and we are delighted to welcome
him to Mitie. He will be appointed Chairman of the Audit Committee upon David Jenkins stepping down at the AGM, and will also be
appointed to the Nomination and Remuneration Committees. Mark brings significant expertise and experience, having held senior
business, strategy and finance roles at Smith Group plc, Kraft Foods Inc., and Cadbury plc. Mark is Non-Executive Director and
Chairman of the Audit Committee at both Cranswick plc and J D Wetherspoon plc.
Review of Committee Terms of Reference and Delegated Authorities
During the year the division of responsibilities between the Chairman and Chief Executive, and the Committee Terms of Reference
were reviewed and updated to ensure that they were in line with best practice. The Board also reviewed and adopted updated
Delegated Authorities for the group.
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Mitie Group plc
Strategic Report
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Financial
Remuneration Policy Review
During 2014 the executive remuneration policy was reviewed. Mitie’s principal shareholders were consulted prior to finalising the
policy and, at the end of the process, we were pleased that a strong majority of shareholders consulted were supportive of the
proposals. The review is now complete and a revised policy designed to operate for the next three years will be presented at the
AGM in July.
Further details are provided in the Directors’ Remuneration Report which can be found on pages 57 to 78.
Roger Matthews
Chairman
The Board
Board members
The members of the Board and their accompanying biographies are set out on pages 42 and 43. All Directors are expected to
allocate sufficient time to the Company to discharge their responsibilities effectively and, where possible, attend all Board meetings
and the AGM. Any time commitment matters are addressed by the Chairman with the Director concerned.
Chairman
Roger Matthews
Board members (executive)
Ruby McGregor-Smith
Suzanne Baxter
Bill Robson (until 31 July 2014)
Board members (non-executive)
David Jenkins
Crawford Gillies
Larry Hirst
Jack Boyer
Key purpose of the Board
The Board is collectively responsible for the sustainable long term success of the Company and provides leadership and direction
to management. Accordingly, the Board reviews and agrees the strategy for the group, proposed by the Executive Directors, on an
annual basis and reviews certain aspects of the strategy at Board meetings during the year. In setting the strategy, the Board takes
account of matters such as: market trends; competitive environment; private/public sector approach; international aspects of the
business and opportunities; finance; people and talent; and the Mitie Model, ensuring at all times that sufficient consideration is given
to risk and internal controls.
Key responsibilities
There are key matters and responsibilities that are set aside to be dealt with exclusively by the Board. These include:
a strategy – including setting group strategies and objectives;
a financial reporting – including approving the group’s Half-Yearly and Annual Report and Accounts, and approving business plans
and budgets and monitoring performance against them;
a internal controls – including management of the group’s risk profile;
a acquisitions, disposals and contracts – including approving material acquisitions, disposals and business start-ups (including any
material transactions outside of the normal course of business);
a corporate governance matters – including appointing and removing the Chairman, Directors and Company Secretary;
a delegation of authority – including the division of responsibilities between the Chairman and the Chief Executive; and
a communication – including making arrangements for dialogue with shareholders and canvassing shareholder opinion.
The Board recognises its overall responsibility for the group’s system of internal control, which is designed to safeguard assets
and ensure the reliability of financial information for both internal use and external publication. Within a framework set by and with
oversight of Group Finance, the implementation of the system of internal control is managed by the leadership of each division.
The Audit Committee monitors the effectiveness of these controls on behalf of the Board, through Internal Audit and the Group
Enterprise Risk framework.
The Directors are mindful of their legal duties to act in the way they consider, in good faith, will be most likely to promote the success
of the Company for its shareholders, having regard also to other stakeholders.
Mitie Group plc
45
The Board
Frequency of Board meetings
During the year ended 31 March 2015, there were six scheduled Board meetings. Additional unscheduled Board meetings were held
to deal with the review and approval of material transactions, key contracts, acquisitions and issues relating to shares and other
administrative matters.
Attendance
Number of scheduled Board meetings held in the year:
6
Roger Matthews
6
Ruby McGregor-Smith
6
Suzanne Baxter
6
Bill Robson*
2 of 2
Crawford Gillies
6
Larry Hirst
6
David Jenkins
6
Jack Boyer
6
Note:
* Bill Robson retired from the Board on 31 July 2014.
Division of responsibilities of our Chairman and Chief Executive
Our Chairman and Chief Executive have clearly defined and separate roles divided between running the Board on the one hand, and
the business on the other, whilst maintaining a close working relationship. They have an open dialogue and meet regularly between
Board meetings to ensure a full understanding of business issues, and facilitate efficient decision making. The document setting
out this division of responsibilities was updated during the year and is available on the website at http://www.mitie.com/investors/
shareholder-services/corporate-governance.
The Chairman
The Chairman is a Non-Executive Director and is responsible for running the Board and ensuring its effectiveness in all aspects of
its role, including the regularity and frequency of meetings. He liaises with the Company Secretary to set Board agendas, taking into
account the issues and concerns of all Board members. Key matters covered at each Board meeting include: strategy, enterprise
risk management, financial and management reporting, investor relations, corporate governance, and operating business reviews,
with updates received from each Committee Chair. The Chairman manages the Board to ensure sufficient time is allocated to
promote healthy discussion and open debate, supported by the right level and quality of information to assist the Board in reaching
its decisions. He facilitates the effective contribution of Non-Executive Directors and encourages active engagement by all members
of the Board. He ensures constructive relations between the Executive and Non-Executive Directors, and that the Executive and
Non-Executive Directors are aware of the views of major shareholders. The Chairman is also responsible for ensuring that the Board
addresses major challenges faced by Mitie and for the effective performance of the Board and its Committees. The Chairman is
available to consult with shareholders throughout the year and will be available at the AGM.
The Chief Executive
The Chief Executive is responsible for all aspects of the operation and management of the group and its business within the
authorities delegated to her by the Board. She is responsible for developing group objectives and strategy, having regard to the
group’s responsibilities to its shareholders, customers, employees and other stakeholders. The Chief Executive’s remit includes
effectively implementing strategy following approval of the strategic and financial plan by the Board, proposing investment in new
business and geographical areas, and ensuring at all times that the group’s risk profile is appropriately considered. She ensures
the effective implementation of Board decisions, and regularly reviews the operational performance and strategic direction of the
group’s business. She leads the Executive Directors and senior management team in the day-to-day running of the group’s business
under clear delegation of authority from the Board and manages the appropriate disclosure of information to the Board and to
shareholders. The Chief Executive maintains regular dialogue with the Chairman on all important Company matters and together
they provide coherent leadership of the group.
The Executive Directors
Executive Directors oversee the entire operations of the group and in addition have specific responsibility for managing their own
area of the business.
The Non-Executive Directors
Non-Executive Directors review the proposals for the strategic direction of the group, constructively challenging and probing
proposals presented by the Executive Directors, based on their breadth of knowledge, experience and individual skills, and
contributing to the formulation and development of strategy. The Non-Executive Directors monitor high level corporate reporting
and satisfy themselves as to the integrity of financial information and the operation of key controls. The Non-Executive Directors
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Mitie Group plc
Strategic Report
Governance
Financial
have a responsibility to exercise their independent skill and judgement in carrying out their duties, and meet without the Executive
Directors present during the year.
The terms of appointment of the Non-Executive Directors and the Executive Directors’ service contracts are available for inspection
at Mitie’s registered office, Mitie’s head office in Bristol, and at the AGM.
The Senior Independent Director
The role of the Senior Independent Director is to make himself available to shareholders should they have concerns which have not
been resolved through the normal channels of Chairman, Chief Executive or Group Finance Director, or for which such contact is
inappropriate in the circumstances. The Senior Independent Director in particular reviews information on major shareholders and
financial analysis to obtain a balanced understanding of the issues and concerns of shareholders.
Evaluation of the performance of the Board and the Committees
During the year the Board internally reviewed its performance and that of its Committees and individual Directors. The process was
based upon the completion of an appropriately designed questionnaire and one-to-one meetings or telephone calls (where required)
between the Chairman and individual Directors. Key areas addressed were the Board’s composition (balance of skills, experience,
independence, knowledge of the Company, and diversity, including gender), clarity of strategy, frequency of Board and Committee
meetings, proficiency and quality of information provided, and follow-through on the prior Board evaluation.
Evaluation of the Chairman was conducted by the Senior Independent Director. The conclusions and recommendations of the review
were shared with the Board at the meeting in May 2015. The Board is satisfied as to its effectiveness and that of its Committees and
Directors. In addition to reviewing performance and governance, the Board will continue to focus on its composition and the balance
of its skills and experience. The Board will receive regular updates and management presentations during the year on the strategic
development and operational and financial performance of the group.
The Board was assisted by independent consultants, Condign Board Consulting, during the previous financial year and will solicit
external support again in the coming two years in line with the requirements of the Code.
Director re-election
The performance of each Director has been reviewed as part of the annual board evaluation process and the Board is satisfied that
they continue to operate effectively and demonstrate clear commitment to their roles. All Directors other than Crawford Gillies will
submit themselves for re-election at the 2015 AGM. Further details on this can be found on page 44 (Board composition).
The Director Induction process
All Directors receive a personally tailored induction to Mitie which includes meetings with key senior managers, and visits to
divisional offices and key client sites. They receive an information pack, which includes: copies of Mitie’s Articles of Association;
the latest Annual Report and Accounts; the Committee terms of reference and copies of recent Board and Committee minutes;
and supporting papers. Directors are given access to the online board portal which, as well as holding all Board reports and
Board minutes, has a reading room containing the Board Handbook detailing essential information about: the Company;
Board and Committee terms of reference; Directors’ statutory duties; governance and regulatory guidelines; the group’s
approved delegated authorities; and an overview of the group’s insurance arrangements. The Handbook is reviewed and
updated regularly. Additional briefing notes are circulated where appropriate on matters such as changes in the regulatory and
governance environment.
Our Board accountability and assurance explained
Risk management approach
The Board understands that effective risk management and a sound system of internal control is central to the achievement of the
group’s business strategy of delivering sustainable, profitable growth. The Board, supported by the Audit Committee, has continued
to drive improvements to better understand the nature of the risks the group faces as it continues to grow in size, shape and
complexity. The group will continue to focus on embedding risk management across all areas of the business to ensure the continued
identification of risks to, and opportunities supporting, the delivery of our strategic objectives.
Risk management processes
It is recognised that a flexible and adaptable approach to risk management is required to meet the demands of the dynamic and
quickly evolving environment in which the group operates. Processes are in place to ensure that each operating division and support
function identifies and assesses the risks to achieving its objectives, the associated mitigation measures and the potential impact of
the crystallisation of those risks. This process was reviewed during the year and refocused to ensure clarity of requirements were
understood via formal risk management workshops to provide consistency in risk identification and assessment. Responsibility for
specific areas of risk flows through the business, with delegated accountability and responsibility assigned to specific risk owners.
The group risk profile is reviewed by the Chief Executive and Group Finance Director in advance of review and approval by the
Audit Committee and the Board. This information is captured in risk registers at business, divisional and functional level, which are
subsequently consolidated into strategic, operational, financial and regulatory risk categories within an overall group risk register
that is maintained by the Enterprise Risk function.
Mitie Group plc
47
The Board
Risk identification and assessment
Both internal and external perspectives are taken into account when considering the risks that pose a threat to the achievement of
the group’s strategy to ensure a thorough identification process occurs. The external view will include the economic position, political
factors, and sector and geographical risks. The internal view takes into account factors including our changing and developing
business profile, operational processes, technology and people.
Identified risks are then assessed using standard impact and likelihood ratings to quantify the risk to the achievement of business
objectives. This approach is consistent across all our operations and support functions and provides executive management and
the Board with the ability to prioritise resources to manage risk. Independent challenge and oversight of the risks identified within the
divisional and functional risk registers is provided by the Enterprise Risk function and divisional managers, to ensure meaningful and
consistent results are achieved.
Risk mitigation
The control and mitigation element of our risk management process continues to be reviewed and enhanced to ensure the
provision of more robust information on the effectiveness of the identified controls in place. Each identified risk has a defined control
owner who is responsible for developing a plan to mitigate the risk. Assessment of the effectiveness of this control environment is
undertaken at divisional and group level, with the Audit Committee formally reviewing performance.
Risk monitoring and review
As our business profile continues to change, the risk management process remains a dynamic one, with principal risks monitored
throughout the year to ensure the risk profile is accurate and the control environment remains effective. Through this process, newly
identified risks will feature on the risk register and some risks may be removed. The overall risk profile for 2015 has remained in line
with that reported previously, although the definition of a number of risk events has been refined in order to more accurately reflect
the evolving business and the potential challenges to achieving our strategic objectives. It should be noted that there are other risks
identified as part of our risk management process, but these do not have a material impact on the group’s overall ability to achieve
business objectives. These risks are managed via the existing risk management process.
To further encourage a culture of risk management within the business, the Audit Committee, on behalf of the Board, regularly
reviews the programme of risk management undertaken across the group to demonstrate the importance of the management and
assessment of risk at a senior level, and to take ownership of mitigation improvements where required.
Ultimately the risk management framework is designed to manage rather than eliminate the risk of failing to achieve the objectives
and strategies of the group and can therefore only provide reasonable, and not absolute, assurance against material risk and
loss. The Board, through the Audit Committee, considers the nature and extent of significant risks in setting the group’s strategy.
Details of the principal risks of the group are set out on pages 38 and 39. The Audit Committee confirms that this risk management
process has been applied throughout the reporting year and up to the date of approval of the Annual Report and Accounts.
Internal control and assurance
In line with Mitie’s operating model and within the framework set by Group Finance, the implementation of the system of internal
control is managed by the leadership of each division. Group functions (such as Finance, Human Resources and Risk) collaborate
with divisional teams to promote continuous improvement and ensure that controls are operating effectively. A formal review
of the internal control environment, led by the Divisional Directors, is undertaken annually in each division through the Internal
Control Questionnaire, which evaluates controls in all key business processes. The Audit Committee receives assurance over the
effectiveness of divisional controls through this process, updates from specific functions, and Internal and External Audit.
The Internal Audit function is structured by way of a co-source arrangement with in-house auditors working alongside specialists
from Grant Thornton LLP to achieve the overall delivery of the Internal Audit programme. The Internal Audit programme is designed
to provide a level of assurance over the principal risks and controls to the group and is developed by the Head of Internal Audit.
The Audit Committee supports the Board by monitoring and guiding the activities of the Internal Audit function, including review and
approval of the Internal Audit programme, reviewing the findings of the reports from the Internal Audit function, and reviewing plans
to address identified areas for improvement arising from the audits.
The Audit Committee also receives regular reports from the Independent Auditor, Deloitte LLP, who contribute a further independent
perspective on the internal financial control systems arising from their audit work. The Audit Committee also receives an update
from the Head of Internal Audit and the Executive Directors on the operation of controls within the business.
Committees of the Board
The Board has five formally constituted committees: the Audit Committee, the Nomination Committee, the Remuneration
Committee, the Investment Committee and the Results Committee, the scope of which are set out on the following pages.
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Mitie Group plc
Strategic Report
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Financial
Audit Committee
The primary role of the Audit Committee is to oversee and assist the Board in its responsibility to approve a set of fair, balanced and
understandable group Annual Report and Accounts. The accounts should provide the information necessary for shareholders to
assess the Company’s strategy, business model and financial performance throughout the year.
The Committee ensures that the group has in place effective financial governance in respect of the group’s financial results, the
performance of both the Internal Audit function and the Independent Auditor, and the management of the group’s systems of internal
control, business risks and related compliance activities.
Audit Committee members
The Chairman of the Committee is David Jenkins, who continues to be deemed by the Board, as at the date of this report, to
have significant, recent and relevant financial experience through his qualifications and ongoing positions. David will retire from
the Board in December 2015, and will step down as Chairman of the Committee at the AGM in July. Mark Reckitt will be appointed
Non-Executive Director with effect on 1 July 2015, and will be appointed Chairman of the Audit Committee upon David stepping
down. Mark is similarly deemed by the Board to have significant, recent and relevant financial experience through his qualifications
and ongoing positions. Mark’s biography is included in the Notice of AGM.
The Audit Committee comprises independent Non-Executive Directors who are all considered appropriately experienced to fulfil
their duties.
Chairman
David Jenkins
Committee members
Crawford Gillies
Larry Hirst
Jack Boyer
Key purpose of the Audit Committee
The Audit Committee provides effective governance over the appropriateness of the group’s financial reporting, and the
performance of both the Internal and External Audit functions. The Committee also oversees the group’s internal control systems,
business risks management and related compliance activities.
The Committee meets independently with the Independent Auditor and the Head of Internal Audit without the Executive Directors
present. As Chairman of the Committee David Jenkins will be available at the AGM to answer any questions about the work of
the Committee.
Key responsibilities of the Audit Committee
The key responsibilities of the Audit Committee include:
a monitoring the integrity of the financial statements of the Company, including its annual and interim reports, preliminary results’
announcements and any other formal announcement relating to its financial performance, reviewing and reporting to the Board
on significant financial reporting issues and estimates and judgments having regard to matters communicated to it by the
Independent Auditor;
a reviewing summary financial statements, significant financial returns to regulators and any financial information contained in
certain other documents, such as announcements of a price sensitive nature;
a reviewing the Half-Year Financial Report and Annual Report and Accounts, including the fair, balanced and understandable
statement, and recommending the same for Board approval;
a keeping under review the adequacy and effectiveness of the Company’s internal financial controls and internal control and risk
management systems (being the systems established to identify, assess, manage and monitor financial and other risks);
a reviewing accounting policies and key areas of accounting judgement;
a reviewing the Independent Auditor’s audit plan, nature and scope of work and overall summary of key issues and judgements;
Mitie Group plc
49
Audit Committee
a assessing the effectiveness of the Independent Auditor including the appropriateness and skills of its audit team, the quality
of its services, and its re-appointment;
a reviewing and monitoring compliance with the Non-Audit Services Policy and maintenance of auditor independence;
a reviewing the group’s consolidated risk register prior to its approval by the Board;
a approving the group’s assurance framework and the internal audit plan;
a reviewing key internal audit reports and findings;
a reviewing the adequacy and security of the Company’s arrangements for its employees and business partners to raise concerns,
in confidence, about possible wrongdoing in financial reporting or other matters (ensuring that these arrangements allow
proportionate and independent investigation of such matters and appropriate follow up action);
a considering management’s response to any major internal or external audit recommendations; and
a monitoring the effectiveness of the internal audit, independent audit and risk management systems and functions.
The Audit Committee’s terms of reference were updated during the year and are available at http://www.mitie.com/investors/
Frequency of Audit Committee meetings
During the financial year, the Audit Committee met five times. Meetings may, by invitation, be attended by the Company’s
Independent Auditor, the Chairman, the Chief Executive, the Group Finance Director and the Head of Internal Audit.
Attendance
Number of meetings held in year:
5
David Jenkins
5
Crawford Gillies
4 of 5
Larry Hirst
5
Jack Boyer
5
The role of the Committee – financial reporting
The primary role of the Committee in relation to financial reporting is to review with both management and the Independent Auditor
the appropriateness of the Half-Year and Annual Report and Accounts concentrating on, amongst other matters:
a the consistency of, and any changes to, significant accounting policies and practices both on a year on year basis and across
the Company;
a the clarity and completeness of disclosure in the Company’s financial statements and the context in which statements are made;
a the methods used to account for significant or unusual transactions where different approaches are possible; and
a whether the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s performance, business model and strategy.
To aid the review, the Committee considers reports from the Group Finance Director and also reports from the Independent Auditor
on the outcomes of the Half-Year review and Independent Audit.
Going concern
The Audit Committee considered the evidence that supports the ability of the Directors to conclude that Mitie has adequate financial
resources to continue in operation for the foreseeable future and can prepare its accounts on a going concern basis. The Committee
considered the future prospects and performance of the group including the potential impact of acquisition activity; the projected
future cash flows of the group; the availability of core and ancillary financing facilities and compliance with related covenants; and the
projected drawn positions and headroom available on the core committed financing facilities. It also reviewed and considered the
disclosures on the matter of going concern in the Annual Report and Accounts and considered them to be appropriate.
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Significant issues considered by the Committee during the year
The Audit Committee considered the following significant matters of judgement in relation to the accounting judgements contained
in the Annual Report and Accounts. In all cases, papers were presented to the Audit Committee by management, setting out the
material matters of accounting estimates and the judgements associated with each item. A separate paper was presented to the
Audit Committee by the Independent Auditor that set out his views on each area of judgement. The Audit Committee discussed
the papers with management and sought the views of the Independent Auditor on each matter, and for each area of judgement
concurred with the treatment presented by management and in the Annual Report and Accounts.
Accounting for material contracts
The group operates a broad portfolio of contracts and discloses revenue recognition as a critical judgement in the Annual Report and
Accounts. The methodology used for the recognition of contract revenue influences the amount of profit recognised on a contract
as well as the inclusion and valuation of contract related assets and liabilities on the balance sheet.
The Audit Committee considered papers prepared by management on revenue and profit recognition on contracts; on the
accounting treatment applied to the group’s larger integrated facilities management contracts, where judgement is required in
respect of the percentage of completion of contracted work when recognising revenue and profit; on contract performance and the
recognition and valuation of contract related assets and liabilities; and on the recoverability of certain specific contract receivables
and the risk associated with their collection.
The Committee concurred that the judgements made in respect of accounting for material contracts were appropriate.
The valuation of goodwill
The group has undertaken a number of acquisitions in the past and carries goodwill as an intangible asset on its balance sheet in
respect of the businesses acquired (see Note 13).
The valuation and impairment review of goodwill is assessed for each individual cash-generating unit (CGU) and considers the
balance sheet value of the goodwill compared to the net present value of the post-tax cash flows that are expected to be generated
by that CGU. This involves an estimation of the future cash flows deriving from each CGU and also the selection of appropriate
discount rates, which are then applied to the cash flows to calculate a net present value.
The assumptions underpinning the review were considered by the Audit Committee. The cash flow forecasts used in the review were
derived from the most recent CGU budgets which have been reviewed and approved by the Board and the long-term business plans
of the group. The assumptions underpinning the review, and also the sensitivity of the decision on goodwill impairment to changes
in key assumptions including the discount factor was considered by management and presented to the Audit Committee. The Audit
Committee reviewed the goodwill associated with the group’s Healthcare CGU where the financial performance of the business has
deteriorated during the year. The Committee considered a detailed paper from management on the key assumptions underpinning
the business plan for the CGU, the sensitivity of the impairment testing to potential changes to both the key assumptions and the
discount rate applied therein, and the disclosures to be made in the accounts. On the basis of this review, the Audit Committee
agreed with management that no impairment to goodwill was necessary.
Accounting for the exit from the group’s engineering contracting business and from certain Energy Solutions contracts
The full trading result of the cyclical mechanical and electrical engineering contracting business has been separately disclosed
within Other items (see Note 5) due to the significance of its scale to the group, along with the costs of closure of that business.
A number of contract provisions and costs have also been incurred in the year in reducing the group’s exposure to design and build
construction contracts in the Energy Solutions business. These have also been separately disclosed as Other items on the face of
the income statement.
In forming judgements on the accounting estimates in respect of these businesses throughout the year, the papers presented to
the Committee considered the performance of the contracts within each business area, the carrying value of contract related
assets and liabilities in the balance sheet and the extent of any continuing obligations of the group in respect of those businesses.
The Committee also considered the disclosures made in the accounts in respect of the charges arising from the curtailment of the
group’s exposure to these businesses.
Mitie Group plc
51
Audit Committee
During the year, the Committee specifically considered the accounting treatment afforded to the group’s 30% non-controlling equity
interest in O-Gen Plymtrek Limited (O-Gen), to which Mitie had also extended subordinated debt. The Energy Solutions division had
a contract to construct and operate a renewable energy plant for O-Gen which had been subject to delays and considerable cost
overruns . At 31 March 2015, the group had no remaining obligations or liabilities in connection with the project to construct the plant
or any material exposures arising from its interest in O-Gen that were not provided for in the accounts following the termination of
contractual arrangements in March 2015. During the year, consideration was given to the treatment that should be adopted for the
joint venture on consolidation of the group’s results, and whether it should be considered to be a subsidiary or an associate. As a
result of a number of factors, and in particular the combination of not having a majority of directors on the Board and having no
veto rights over substantive matters, the group’s interest in O-Gen was accounted for as an associate and is held at nil value on the
balance sheet at 31 March 2015 (see Note 5).
The Committee satisfied itself that the accounting treatment and disclosures in respect of the group’s exit from these business
activities was appropriate.
The presentation of the income statement
The financial statements contain all the information and disclosures required by the relevant accounting standards and regulatory
obligations that apply to the group. Mitie has elected to provide some further disclosures and performance measures in order to
present its financial results in a way that best demonstrates the performance of its business. In particular, Mitie adopts headline
measures of its performance and separately discloses certain costs and income as Other items in its income statement in order
to demonstrate the underlying performance of its business.
The Audit Committee considered the use of these non-statutory measures of performance and related reporting formats and
extent of disclosures in order to satisfy itself that the presentation of the group’s results is transparent, fairly reflects the activity
of the business during the reporting period and enables a clearer understanding of the underlying performance of the business
over time.
In satisfying itself, the Committee had regard to:
a the nature of the item and the circumstances leading to recognition; and
a the requirement for a fair, balanced and understandable presentation of performance and the need to separately disclose and
explain certain items to fully understand and give clarity to the underlying activities and performance of the group.
The role of the Committee – external audit
Each year the Audit Committee reviews the performance of the Independent Auditor in respect of audit related services and
non-audit related services and is committed to ensuring the independence, effectiveness and objectivity of the Independent Auditor.
Appointment and tendering of Independent Audit Services
The Audit Committee will continue to give consideration to the timing of the next formal tender in light of guidance and changes
in regulatory requirements. There are no contractual obligations restricting the Company’s choice of Independent Auditor.
Deloitte LLP has been the Company’s Independent Auditor since its market listing over 25 years ago. However, Mitie tendered its
full external audit services in 2012 and concluded that Deloitte LLP should be re-appointed as Independent Auditor given its relevant
experience in both the PLC environment and the support services sector.
Independent Auditor effectiveness
The Audit Committee monitored the conduct and effectiveness of the Independent Auditor through its assessment of:
a the experience, expertise and perceptiveness of the auditor;
a the planning and execution of the agreed audit plan and quality of audit reports; and
a the conduct of the auditor including the Audit Committee’s experience of interaction with the auditor, which included meetings
held in the absence of management.
The Audit Committee is satisfied with the effectiveness of the independent audit and, in light of the audit tender conducted in 2012,
has assessed and recommended to the Board the continued engagement of Deloitte LLP as the Company’s Independent Auditor.
Deloitte LLP has expressed willingness to continue in office as our Independent Auditor and accordingly the Board is recommending
their re-appointment as Independent Auditor at the forthcoming AGM.
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Financial
Non-Audit Services provided by the Independent Auditor
The Audit Committee has approved a Non-Audit Services Policy that ensures the Independent Auditor remains independent and
objective throughout the provision of their independent audit services and when formulating their audit opinion. In order to retain the
flexibility of utilising the Independent Auditor to provide non-audit services, the following criteria must also be met. These are such
that the Independent Auditor does not:
a audit their own work;
a make management decisions for the group;
a create a conflict of interest; or
a find themselves in the role of advocate for the group.
The Non-Audit Services Policy identifies the various types of non-audit services and determines the analysis to be undertaken along
with the level of authority required before the Independent Auditor can be considered to undertake such services. Further, the policy
is consistent with the Financial Reporting Council’s ethical standards policy.
When considering the appointment of the Independent Auditor for non-audit services, the following factors are taken into account:
a the quality of work provided by the Independent Auditor;
a representations provided by the Independent Auditor regarding independence and objectivity, along with internal controls
implemented by them when providing non-audit services;
a the level of the Independent Auditor’s understanding of the group;
a the nature of the work being performed; and
a the commercial and practical circumstances of particular types of work required.
Non-audit services provided to the group during the year included corporate finance services associated with the extension of the
group multi-currency revolving credit facility. The Audit Committee considered reports from both management and the Independent
Auditor, none of which raised concerns about auditor independence.
A summary of the fees paid to the Independent Auditor is given in Note 6 to the financial statements. The Audit Committee confirms
that the requirements of the Non-Audit Services Policy have been met throughout the year.
Assurance
In accordance with ‘Internal Control: Guidance for Directors’ and the revised section C.2.1 of the Code, the Board performs a formal
annual assessment of the operation and effectiveness of the system of internal control, covering all material controls including
financial, operational and compliance controls, and updates this assessment prior to the signing of the Annual Report and Accounts.
These activities are monitored at executive level to ensure that control changes are implemented appropriately and that they
are effective. The Head of Internal Audit oversees the application of control environment improvements and attends each Audit
Committee meeting to provide regular updates on the effectiveness of the group’s internal controls and the results of the internal
audit process.
Features of the internal control and risk management systems that ensure accuracy and reliability of financial reporting include: a
culture of good governance, integrity, competence, fairness and responsibility; group level policies and procedures to support the
business by providing an operational internal control framework; clearly defined responsibilities, delegated in accordance with the
group’s delegated authorities and authorisation registers; and a group function with a team of specialist resources.
David Jenkins
Chairman of the Audit Committee
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53
The role of the Nomination Committee Chairman is to ensure the Board is appropriately balanced in terms of composition, skills
and experience. The Committee is comprised of independent Non-Executive Directors who are all considered to be appropriately
experienced to fulfil their duties.
Who is on the Nomination Committee?
Chairman
Roger Matthews
Committee members
David Jenkins
Crawford Gillies
Larry Hirst
Jack Boyer
Key purpose of the Nomination Committee
The Nomination Committee evaluates the composition, experience, knowledge, skills and independence of the Board and its
Committees. This allows the appropriate balance to be maintained and ensures continued effectiveness.
The Committee also ensures that appropriate succession plans for the Non-Executive Directors, Executive Directors and the group’s
senior management are also kept under review, taking into account the challenges and opportunities facing the group, and what
skills and expertise are therefore required in the future.
Key responsibilities of the Nomination Committee
The responsibilities of the Nomination Committee include:
a giving full consideration to succession planning for Directors and other senior executives;
a making recommendations to the Board concerning the following:
– potential candidates to fill Board vacancies when they arise,
– suitable candidates for the role of Senior Independent Director,
– appointment of the Company Secretary; and
– membership of the Committees;
a keeping up to date and fully informed about strategic issues and commercial changes affecting the group and the market in which
it operates; and
a reviewing the results of the Board performance evaluation process that relate to the composition of the Board.
The Nomination Committee’s terms of reference were updated during the year and are available at http://www.mitie.com/investors/
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Key activities during the year
The Committee reviewed the composition and chairmanship of the Board and each of its Committees and determined that all
Non-Executive Directors remained independent in character and judgement. The Committee continues to be satisfied that the
Board’s composition has been appropriate throughout the year, having regard in particular to the integrity, skills, knowledge and
experience of its Directors and the size and nature of the business.
The Committee worked with executive search firms Inzito and Norman Broadbent during 2014/15. Both firms supported the
Committee in its search for potential appointees to replace David Jenkins as Non-Executive Director and Chairman of the Audit
Committee and Crawford Gillies as Non-Executive Director. Mark Reckitt will be appointed Non-Executive Director on 1 July 2015,
and Chairman of the Audit Committee upon David Jenkins stepping down from that post at the AGM in July, as notified to the
market in May 2015. It is intended that Mark be appointed as Chairman of the Audit Committee after the AGM. David Jenkins will
step down as Chairman of the Audit Committee and Senior Independent Director on 13 July 2015, but will remain as a Non-Executive
Director of the Board until his retirement in December 2015.
A detailed and personally tailored induction programme is undertaken for Non-Executive Directors joining the Board in line with
Mitie’s standard procedure.
Frequency of Nomination Committee meetings
During the financial year, the Committee met four times.
Attendance
4
Roger Matthews
4
David Jenkins
4
Crawford Gillies
4
Larry Hirst
4
Jack Boyer
4
Our policy on diversity
Mitie has a company-wide Diversity Policy that clearly states its commitment to the inclusion and diversity of all employees at all
levels, up to and including Board level. The Chief Executive and the Group Finance Director are both female and serve on the Board.
The Group’s employment practices and policies are designed to recruit, motivate, retain, train and develop the very best people,
recognising that this can be achieved only through offering equal opportunities regardless of gender, race, religion, age, disability,
sexual orientation or any other aspect of diversity.
The Board is responsible for driving the diversity agenda throughout the organisation, supported by an independently-chaired
Diversity Steering Group comprised of senior business leaders from all business areas. The Steering Group identifies group-wide
strategy and facilitates business specific diversity action plans to drive the diversity agenda.
The Board remains committed to developing a culture that encourages the inclusion and diversity of all of the group’s employees,
respecting and appreciating their differences and promoting the continuous development of employees through skills enhancement
and training programmes. The Board is keen to ensure that all aspects of diversity are considered in the promotion, retention and
development of the talent pipeline throughout the group as well as at Board level.
Workforce data is reviewed and monitored across all business areas, by salary banding, to track progress made on employee
diversity, with particular regard to gender, age, disability and ethnicity. Particular achievements include continued improvements in
the percentage of women at all salary bands within the organisation and an increase in the mix of ethnicity across salary bandings.
Mitie has a Board-sponsored women’s network (Women at Work) with the aim of promoting, supporting and encouraging women
in progressing their careers within Mitie. Both men and women are able to join the network and participate in all networking/
development events.
The model of an employee-led, Board sponsored, forum has proven successful, and in 2015 further networks will be launched
covering the Black, Asian and minority ethnic (BAME), lesbian, gay, bisexual and transgender (LGBT), and disability communities.
Mitie continues to successfully build on its’ long-standing relationship with Remploy, which has been in place since 2006. Mitie actively
provides support for disabled people through provision of work experience and employment opportunities, with more than 550
disabled people employed to date.
Mitie Group plc
55
Mitie continues to support individuals with complex barriers to work and has formed a strategic partnership with Mosaic. This is a
national initiative aimed at providing mentoring and training for young people in the offender system.
Further details of the diversity of Mitie’s people can be found in the sustainability report which is available on the Company’s website
at www.mitie.com.
Roger Matthews
Chairman of the Nomination Committee
Remuneration Committee
The Directors’ remuneration report is set out on pages 57 to 78 and details the Remuneration Committee’s activities during the year
and its policy on remuneration. The Directors’ remuneration report contains full details of any earnings that the Executive Directors
are permitted to retain from their external appointments. The Chairman of the Remuneration Committee will be available at the AGM
to respond to any shareholder questions relating to the Remuneration Committee.
Investment Committee
Overview and purpose
The Investment Committee strengthens the group’s governance framework and facilitates the internal approvals process by
approving matters as delegated by the Board and referring recommendations for Board approval. The Committee, which comprises
the Chief Executive, as Chair, and Group Finance Director, met ten times during the year and considered matters such as major bids
and contracts, acquisitions, disposals, large capital expenditure and Mitie Model investments.
Results Committee
Overview and purpose
The Results Committee assists the Board in approving matters such as Half-Year and preliminary results announcements, other
routine, non-material announcements and shareholder communications. The Results Committee, which comprises the Chief
Executive, as Chair, and Group Finance Director, met twice during the year.
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Statement from the Remuneration Committee Chairman
Introduction
On behalf of the Board, I am pleased to present the Directors’ remuneration report for the year ended 31 March 2015.
I was pleased to be appointed as Chairman of the Remuneration Committee from 1 October 2014. My thanks go to Crawford Gillies,
who served as Chairman of the Committee from November 2013, for his support when I took over the role.
At Mitie, we work hard to ensure that our people are fully engaged with our company and its clients. To continue delivering strong
results, it is imperative that we are able to attract and retain the right people and motivate them to make a positive contribution to
the business. Attraction, incentivisation and retention are key tenets of our reward strategy.
In my first annual statement to shareholders, I would like to share with you:
a How our executive remuneration policy is aligned to Mitie’s strategy;
a How Mitie’s performance has affected incentive-linked remuneration for 2014/2015; and
a Our long-term approach to executive remuneration and the proposed future policy.
How the pay policy is aligned to our KPIs and strategy
Our pay policy supports and rewards the achievement of our strategy to deliver sustainable and profitable growth. This is driven and
measured by how we perform against a number of KPIs, both non-financial and financial, further details of which can be found on
pages 10 to 13 and pages 32 to 37 respectively.
We align our pay policy to our strategy and performance in a number of ways:
Annual Bonus – awarded based on a combination of financial and non-financial measures set by the Board at the beginning of the
financial year; and
Long Term Incentive Plan (LTIP) – based on a number of measures, including: earnings per share (EPS); relative total shareholder
return (TSR); organic revenue growth; and cash conversion.
Pages 58 and 59 gives you more information on bonus and LTIP targets.
Performance and remuneration outcomes for 2014/15
As set out in the Chairman’s overview and Group Finance Director’s report, Mitie has delivered the following results, during the year:
a Headline revenue growth of 5.8% of which 4.9% was organic;
a Headline operating profit growth of 0.9%;
a Headline basic EPS growth of 2.1%; and
a Dividend per share growth of 6.4%.
Mitie Group plc
57
Mitie’s statutory results include trading losses and exceptional charges resulting from the exit of our mechanical and electrical
engineering construction and asset management businesses. Whilst this has come at a significant cost, we are confident that
the right longer term decisions have been made for the business and shareholders.
It has been in this context that the Committee has approached the key decisions regarding the remuneration of our Executive
Directors. With regard to fixed pay, it has been agreed that the Executive Director’s base salaries should be increased by 2.9%
from 1 April 2015. This is line with average salary increases awarded to Mitie’s salaried non-contract UK employees.
For the Executive Directors, this year’s annual bonus was based on the achievement of financial targets (110% of salary) and
performance against strategic objectives relating to organic growth, people management and strategy (50% of salary for the
Chief Executive and 25% of salary for the Group Finance Director). Overall, annual bonus outcomes for 2014/15 are at broadly half
of maximum opportunity (80% of salary for the CEO and 62.5% of salary for the other Executive Directors ). Under the financial
element, the threshold level was achieved which produced an entitlement of c. 90% of salary. However, the Committee, in conjunction
with the three Executive Directors in the financial year, determined that the financial element should be reduced to half of the
threshold level, recognising the statutory result. Against the strategic elements, the Committee has awarded 35% of salary for the
CEO and 17.5% of salary for the other Executive Directors, reflecting good progress on all metrics. Bill Robson stepped down as
an Executive Director on 31 July 2014 and remains a key part of our management team as the Managing Director of our Property
Management division.
With regard to long-term incentives, the LTIP awards granted in 2012 vested at a threshold level of 25%.
Remuneration policy for 2015/16 and onwards
In last year’s report, we informed shareholders that we would be reviewing our executive remuneration policy during the course
of 2014. At the 2014 AGM, shareholders voted overwhelmingly in favour of the policy resolution, with just under 99% of votes cast
in favour. The Directors remuneration report resolution achieved a 73% level of support. Whilst being supported by a number of
our major investors, the votes cast against this resolution were influenced by concerns raised by governance agencies and by
certain shareholders, primarily the exceptional level of LTIP award to the Chief Executive at 250% of salary rather than 200% of
salary and the EPS target set as part of the balanced scorecard of 2013 LTIP performance measures (of which EPS had a 20%
weighting). We engaged with our shareholders regarding these concerns both at the time of the 2014 AGM and later in the year when
undertaking the review of the remuneration policy described further below. Looking back to 2013, the Committee’s perspective was
that the 2013 LTIP award was designed to strengthen further the CEO’s appropriate alignment to shareholders and that the EPS
targets for LTIP were considered stretching in the circumstances prevailing at the time. The CEO’s LTIP award in 2014 was made
at a 200% of salary level.
Our review of the remuneration policy is now complete and we will be presenting to our shareholders a revised policy designed
to operate for the next three years at the forthcoming AGM. We consulted with Mitie’s principal shareholders and the leading
governance agencies prior to finalising the policy and are grateful for their constructive comments, engagement and support
during the consultation process. We refined the final proposal in light of their feedback.
The main aims of the review were to:
a Maintain the role played by equity in our remuneration policy and thereby strengthen the alignment between executive pay and
long-term value creation;
a Ensure remuneration is aligned with our pay for performance culture that rewards strong performance, but also protects against
inappropriate pay outturns;
a Address recent shareholder concerns regarding how the policy had been operated; and
a Recognise current trends in best practice and provide greater transparency.
Our new proposed policy is detailed on pages 62 to 65. In summary, the major elements include:
Element
Remuneration for 2015/16
Key decisions
Base Salary
Set by reference to the individual’s role, experience and
performance. Increases will normally be broadly in line with
the average increase for the salaried non-contract UK based
workforce whose salaries Mitie determine
No change
Benefits
Package of benefits in line with market practice
No change
Pension
Defined benefit accrued at a rate of 1/70th of pensionable
salary up to the level of the HMRC salary cap. A salary
supplement of 20% is also paid above this cap
No change. For new Executive
Directors the policy is to offer
no more than a 20% of salary
pension contribution
Annual Bonus
Maximum opportunity
Chief Executive – 160% of salary
Group Finance Director – 135% of salary
No change
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Strategic Report
Element
Governance
Financial
Remuneration for 2015/16
Key decisions
Performance Measures
Up to 110% of salary – Earnings Before Interest,
Tax and Amortisation (EBITA)
Above 110% of salary – strategic targets (relating to
matters such as organic growth, strategic deliverables,
people management)
No change
EBITA Payout Schedule
Under the new bonus payout range,
there will be:
Performance EBITA
level
performance
– % of target
EBITA
Bonus
payout
– % of salary
Bonus payout
– % of
maximum
Threshold
95%
60%
55%
Target
100%
90%
82%
Maximum
105%
110%
100%
a A lower bonus earned at ‘threshold’
and ‘target’ performance;
a A wider payout range between
‘threshold’ and ‘maximum’
performance; and
a A greater level of outperformance
against ‘target’ will be required to
receive a maximum payout.
Deferral
Any bonus paid over 100% of salary is deferred into shares
for two years
No change (but now subject to malus –
see below)
Disclosure
Disclosure of the EBITA threshold, target and maximum
numbers will be published in the Directors’ remuneration
report immediately following the year end
Timing of disclosure brought forward.
Previous approach was to defer
disclosure for one year
Award Levels
Chief Executive – up to 200% of salary
Group Finance Director – up to 200% of salary
The maximum LTIP award limit will be
reduced from 250% of salary to 200%
of salary. This removes the opportunity
for the Committee to make exceptional
awards above 200% of salary
Performance Conditions
Adjusted EPS growth – 20% of award
Relative TSR – 20%
Organic revenue growth – 30%
Cash conversion – 30%
No change. The targets will be agreed
each year at the time of grant
Post Vesting Holding Period
Following vesting, a holding period will apply for continuing
employees such that 50% of the shares are released
immediately after the third anniversary of the award date,
25% are released a year later and the remaining 25% a further
year later
Post vesting holding period introduced
(shares subject to malus during this
holding period)
Malus
Deferred Bonus and LTIP
Any unvested awards granted under the deferred bonus or the
new LTIP and any shares subject to a holding period will be able
to be lapsed in certain circumstances
Malus clause introduced
Share Ownership
Guidelines
200% of base salary as a minimum
Increased from 150% of base salary
New LTIP
Mitie Group plc
59
The new policy has evolved from the current one and maintains the focus on long-term value creation for our shareholders.
Our expectation is that fixed pay increases will be broadly in line with those of our salaried non-contract UK employees, reflecting the
individual’s role, experience and performance. We have made the annual bonus plan more robust and challenging through the wider
target range that incorporates lower payment levels at threshold and target performance and through the introduction of malus,
with the Committee happy to be accountable to our investors via immediate retrospective disclosure of the EBITA targets.
As our current LTIP would require renewal of its ten year authority at the 2017 AGM, we are bringing forward this item to the 2015
AGM when we are seeking approval for our new policy. The proposed new LTIP 2015 follows the current LTIP but with additional
features, to protect shareholders. The new LTIP now includes a malus clause. The role played by equity in our remuneration policy,
which perhaps provides the most direct and powerful alignment of the long-term interests of our executive team and our investors,
is also further strengthened by the increase in shareholding guidelines and the post vesting holding period introduced in the new LTIP.
Conclusion
Shareholders will be invited to approve our new remuneration policy for the year ending 31 March 2016 and beyond, the introduction
of the new LTIP and the annual remuneration report for the year ended 31 March 2015, at the Company’s AGM on 13 July 2015.
Jack Boyer
Chairman of the Remuneration Committee
Remuneration Policy
Who is on the Remuneration Committee?
The members of the Remuneration Committee are Non-Executive Directors.
Chairman:
Jack Boyer (from 1 October 2014)
Crawford Gillies (until 30 September 2014)
Committee Members:
Crawford Gillies
Larry Hirst, CBE
David Jenkins
Roger Matthews
What is the Committee’s key purpose?
We have the responsibility for determining remuneration for Mitie’s Executive Directors and the Chairman, taking into account the
need to recruit and retain executives and ensuring they are properly incentivised to perform in the interests of the Company, our
people and our shareholders.
What are the Committee’s key responsibilities?
Our key responsibilities are:
a Shaping and agreeing with the Board the policy framework for the remuneration of Executive Directors and certain aspects
of the remuneration of senior management;
a Determining the total individual remuneration package of each Executive Director with due regard to the performance of the
individual in line with the agreed remuneration policy;
a Agreeing Executive Directors’ contractual terms;
a Acting on behalf of the Board, in connection with the establishment and administration of the group’s current and/or future share
plans, including the selection of participants, determining the structure of awards and the setting of performance targets;
a Overseeing the remuneration policy for the group as a whole; and
a Drafting and approving the Directors’ remuneration report and any remuneration related resolutions to be put to the shareholders
at the group’s AGM.
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Who attends Committee meetings?
The Committee regularly consults with Ruby McGregor-Smith CBE, Chief Executive and the People and Transformation Director on
various matters relating to the appropriateness of rewards for the Executive Directors. However, the Chief Executive is not present
when matters relating directly to her individual remuneration are discussed. This is also the case for other executives attending
Committee meetings.
The Company Secretary and/or the Assistant Company Secretary attended the meetings as Secretary to the Committee.
The Chief Executive and People & Transformation Director also attend meetings by invitation only.
How many times did the Committee meet?
During the financial year, we met as a Committee 6 times.
Attendance
6
Jack Boyer
6
David Jenkins
6
Crawford Gillies
5
Larry Hirst, CBE
6
Roger Matthews
6
What were the key activities of the Committee during the year?
During the year and immediately following the year end, we addressed a number of key issues, such as:
a Setting base salaries for the Executive Directors;
a Assessing performance of the Executive Directors and determining annual bonuses;
a Setting bonus targets for the Executive Directors;
a Approving share awards and the vesting of legacy share awards;
a Designing our revised policy and new LTIP, together with a consultation exercise with our major shareholders; and
a Preparing the Directors’ remuneration report.
This report
We have presented this report in accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013. The report also describes how the Board has complied with the provisions set out in the UK
Corporate Governance Code relating to remuneration matters.
At our 2015 AGM we will be holding two votes relating directly to this report: a binding vote on the revised Directors’ remuneration
policy as set out in the policy section of this report and an advisory vote on the implementation section of this report. In addition,
we will also be holding a vote to approve our new LTIP.
The Independent Auditor has reported on certain parts of this report and stated whether, in his opinion, those parts of the report
have been properly prepared in accordance with the Companies Act 2006. Those sections of the report which have been subject
to audit are clearly indicated.
The Company’s remuneration policy
The key principles of the policy
The remuneration policy promotes and embeds the Company’s remuneration principles. The key principles of this policy are:
Performance-related
At the Executive Director and senior management levels, the majority of reward opportunity is
provided through performance-related incentives linked to the Company’s strategic goals and
taking account of the Company’s attitude to risk
Reward under these incentives is linked to both individual and group performance
Shareholder aligned
The performance-related incentive arrangements are designed to align the interests of the
executives with those of shareholders and to promote the Company’s long-term success
Comprehensive and simple
The overall remuneration policy is comprehensive without becoming overcomplicated and
encourages executives to concentrate on profitable growth
Mitie Group plc
61
The policy
As stated above, following a review, major shareholders were consulted regarding changes to the policy which, if approved by
shareholders, will take effect from the date of the AGM.
Purpose and link to strategy
Operation
Base Salary
Set at levels to attract and
retain individuals of the calibre
required to drive the vision and
direction for Mitie.
Salaries are generally reviewed
annually and effective
from 1 April. The review is
influenced by:
Benefits
To aid retention and be
competitive within the
marketplace.
The group provides a range of
benefits which may include a
company car/car allowance,
private fuel, private health
insurance, life assurance and
annual leave.
Opportunity
Base salary increases will be
broadly in line with the average
increase for the salaried noncontract UK employees whose
salaries Mitie determines,
a The individual’s role,
although on occasion other
experience and performance;
specific circumstances such
a Business performance
as changes of responsibilities,
and the wider market and
progression in role, experience,
economic conditions;
or a significant increase in the
a The range of increases
scale of the role and/or size,
across the group; and
value and/or complexity of
the group may also be taken
a An external comparator
into consideration.
group comprised of
sector comparators and
size adjusted FTSE 250
comparator organisations.
Performance metrics
N/A
Benefits are set at a level which N/A
the Committee considers:
a Appropriately positioned
against comparable roles
in companies of a similar
size and complexity in the
relevant market.
Benefits are reviewed
periodically against market and a Provides a sufficient level of
new benefits may be added
benefit based on the role and
and/or amended as required
individual circumstances (for
to support the attraction and
example, relocation).
retention of key talent.
The Committee retains
Additional benefits may be
discretion to approve a higher
awarded in certain recruitment cost than currently incurred
circumstances which may
where factors outside the
include relocation expenses,
Company’s control have
housing allowance and
changed materially (e.g. medical
school fees. Other benefits
inflation) or in exceptional
may be offered if considered
circumstances
appropriate and reasonable by (e.g. relocation).
the Committee.
All Employee Share Schemes
To provide opportunities for the
Directors to voluntarily invest
in the Company on the same
terms as other employees.
62
Executive Directors are eligible
to participate in any allemployee share plan operated
by the Company, in line with
HMRC guidelines currently
prevailing (where relevant), on
the same basis as for other
eligible employees.
Mitie Group plc
N/A
N/A
Strategic Report
Operation
Executive Directors currently
Pension
participate in the group’s
To aid retention and provide
competitive retirement benefits. defined benefit scheme
which is now closed to new
entrants. The plan has a cap
on pensionable salary. A cash
supplement is payable in
respect of full salary.
The Directors are subject to
the same scheme rules as
other members of the Final
Salary scheme. The rules
detail the pension benefits
which members receive
on retirement, death or
leaving service.
Governance
Opportunity
Performance metrics
All Directors accrue at a rate
of 1/70th of pensionable
salary. Pension salary
supplement for each of the
Directors is 20% of salary.
N/A
Financial
The pension salary
supplement for new Directors
will be determined based on
the Committee’s assessment
of competitive levels needed
to attract and retain such
individuals, but will be capped
at 20% of salary.
New Executive Directors
will be eligible to participate
in the defined contribution
pension scheme or receive
a cash allowance in lieu of
a pension contribution.
Annual Bonus Plan
To incentivise and recognise
execution of the Company’s
strategy on an annual basis.
Rewards the achievement
of annual financial and
strategic goals.
Deferral provides alignment
with shareholders.
Measures and targets are set
annually and pay-out levels
determined by the Committee
after the year end based
on performance against
those targets.
The Committee may, in
exceptional circumstances,
amend the bonus pay-out
should this not, in the view of
the Committee, reflect overall
business performance or
individual contribution.
Up to 100% of Base Salary
is paid in cash with anything
over 100% being deferred in
shares which vest in two years
(normally subject to continued
employment). Dividends are
accrued on deferred shares
and paid in cash.
Malus provisions apply to
deferred share awards made
after the 2015 AGM.
Maximum bonus opportunity
is 160% of salary for the
Chief Executive and 135%
of salary for the Group
Finance Director or any other
Executive Director.
Bonuses are based on
stretching financial and
strategic objectives as
set at the beginning of the
year and assessed by the
Committee at the end of the
year, with the underlying aim
of encouraging and rewarding
the generation of sustainable
returns to shareholders.
The Committee has
discretion to determine the
appropriate weightings each
year depending on business
priorities. The financial
measures will represent
the majority of the bonus,
with the strategic objectives
representing the balance.
These elements are additive.
For the strategic element
of the award, payment at
threshold performance is
zero. At the start-to-earn
performance level under the
financial element, a bonus of
no more than 60% of salary
is payable.
Mitie Group plc
63
Operation
Opportunity
Performance metrics
Long Term Incentive Scheme
Awards will be delivered under
a replacement LTIP for the year
ending March 2016.
Annual awards (in the form of
nil-cost options, conditional
share awards or cash
settlements) are made with
vesting dependent upon the
achievement of performance
conditions over three years.
Awards may be made
up to a maximum level
of 200% of salary for any
Executive Director.
Performance over three
financial years is measured
against stretching objectives
set at the beginning of the
performance period which
again have the underlying aim
of encouraging and rewarding
the generation of sustainable
returns to shareholders.
To motivate and incentivise
delivery of sustained
performance and alignment
with shareholder interests.
Award levels and the framework
for determining vesting are
reviewed annually to ensure
they continue to support the
group’s strategy.
The targets that will apply to
the LTIP awards that are to
be made in 2015/2016 are
referred to in the notes below.
The Committee has the
discretion to decide whether,
and to what extent, targets have
been met, and, if an exceptional
event occurs that causes
the Committee to consider
that the targets are no longer
appropriate, the Committee
may adjust them.
Vesting under the LTIP
depends on the achievement
of performance conditions, for
which a minimum performance
threshold has been set.
Awards attributable to each
performance condition vest
at 25% on the achievement
of the minimum performance
threshold rising to 100% for the
achievement of a defined upper
performance threshold.
Dividend equivalents are paid in
cash on or after the date shares
are received.
Subject to shareholder approval
at the AGM on 13 July 2015, in
respect of awards made from
2015/2016 onwards, vested
shares will be subject to an
additional holding period.
Malus provisions apply for
any awards made after the
2015 AGM.
Share Ownership
To ensure alignment
between Executive Directors
and shareholders.
Executive Directors are
required, over time, to build
and maintain a minimum
shareholding in the Company
worth 200% of salary.
They are required to retain
half of the post-tax shares
vesting under the LTIP until
the guideline is met.
64
Mitie Group plc
N/A
N/A
Strategic Report
Governance
Operation
Opportunity
Performance metrics
Chairman and Non-Executive
Director fees
To attract and retain
high-calibre individuals.
Fees are normally reviewed
every three years.
Fees are set at the level which:
N/A
Non-Executive Directors
do not participate in any
incentive schemes.
The fee structure is as follows:
a The Chairman is paid an
all-inclusive single fee for
all Board responsibilities;
a The Non-Executive
Directors are paid a basic
fee, plus additional fees for
Chairmanship of committees;
a Fees are currently paid in
cash but the Company may
choose to provide some of
the fees in shares; and
a Benefits, including expenses,
can be provided if considered
necessary on a case by
case basis.
Financial
a Reflects the commitment and
contribution that is expected
from a Chairman and the
Non-Executive Directors; and
a Is appropriately positioned
against comparator roles
in companies of a similar
size and complexity in the
relevant market.
Actual fees are disclosed in the
for the relevant financial year.
Aggregate fees/value
of benefits are capped
at the amount set out in
the Company’s Articles
of Association.
Notes:
2015/2016 salaries for the Executive Directors can be found on page 70.
2015/2016 bonus targets and measures are discussed on pages 71 and 72.
Award levels, performance conditions and details of the holding period for the LTIP award for 2015/2016 are provided on page 72.
The malus provision under the Annual Bonus Plan and LTIP may be operated if it comes to light within three years that information used to determine performance was materially
inaccurate and resulted in a material overstatement of the award or in the event of any act/omission by an individual that would give grounds for summary dismissal (with no time limit).
What discretions are retained in operating the incentive plans under our policy?
The Committee will operate the Annual Bonus Plan and LTIP according to their respective rules and the above policy table.
The Committee retains discretion, consistent with market practice, in a number of respects, in relation to the operation and
administration of these plans.
These discretions include, but are not limited to, the following:
a The selection of participants;
a The timing of grant of an award/bonus opportunity;
a The size of an award/bonus opportunity subject to the maximum limits set out in the policy table;
a The determination of performance against targets and resultant vesting/bonus pay-outs;
a Discretion required when dealing with a change of control or restructuring of the group;
a Determination of the treatment of leavers based on the rules of the plan and the appropriate treatment chosen;
a Adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events and special dividends); and
a The annual review of performance measures, weightings and targets from year to year.
In relation to both the LTIP and Annual Bonus Plan, the Committee retains the ability to adjust the targets and/or set different
measures if events occur (e.g. material acquisition and/or divestment of a group business) which cause it to determine that the
conditions are no longer appropriate and the amendment is required so that the conditions achieve their original purpose and are
not materially less difficult to satisfy. Any use of these discretions would, where relevant, be explained in the Directors’ remuneration
report and may, where appropriate and practicable, be the subject of consultation with the Company’s major shareholders.
In addition, for the avoidance of doubt, in approving this policy report, authority is given to the Company to honour any commitments
entered into with current or former Directors under previous policies. Details of any payments to former Directors will be set out in
the relevant report going forward as required by the current reporting regulations.
Mitie Group plc
65
How our policy actually influences levels of remuneration
Under our policy, a significant proportion of remuneration is linked to performance. The charts below show how much the Executive
Directors could earn under Mitie’s remuneration policy (as detailed above) under different performance scenarios. The following
assumptions have been made:
a Minimum performance (below threshold) – fixed pay only comprising salaries effective as of 1 April 2015, benefits received
in the year ended March 2015 (excluding the value of any matching SIP shares) and pension received in 2015;
a On-target performance – fixed pay plus an on-target bonus and 25% of the maximum possible LTIP award vesting.
On-target bonus represents 90% of salary for financial targets and 50% of the maximum for strategic targets; and
a Maximum performance – fixed pay plus maximum bonus and maximum LTIP awards.
The scenarios do not include share price growth or dividend assumptions.
Ruby McGregor-Smith
Suzanne Baxter
Minimum
Minimum
On-target
On-target
Maximum
£’000s
Maximum
0
Fixed
Bonus
Value of Package
(£000)
1,000
2,000
3,000
LTIP
Fixed
Bonus
LTIP
Total
738.7
% of package
100%
On-target
738.7
650.8
283.0
1,672.5
44%
39%
17%
100%
738.7
905.5
1,131.9
2,776.1
26%
33%
41%
100%
Maximum
% of package
0
Fixed
Minimum
% of package
£’000s
Bonus
500
1,000
1,500
Bonus
LTIP
2,000
LTIP
Value of Package
(£000)
Fixed
Total
738.7
Minimum
100%
% of package
100%
On-target
482.3
369.2
180.1
1031.5
47%
36%
17%
100%
482.3
486.2
720.3
1,688.8
28%
29%
43%
100%
% of package
Maximum
% of package
482.3
482.3
100%
Our policy on Executive Directors’ service contracts
All Directors are appointed on rolling service contracts but are subject to annual re-election at the AGM in accordance with the Code.
Under the service contracts, the Company is required to give 12 months’ notice of termination of employment; Executive Directors
are required to give 6 months’ notice.
For Executive Directors, if notice is served by either party, the Executive Director can continue to receive basic salary, benefits and
pension for the duration of their notice period during which time the Company may require the individual to continue to fulfil their
current duties or may assign a period of garden leave.
With respect to the current Group Finance Director’s contract, the Company has the right to make a payment in lieu of notice
equivalent in value of up to 12 months’ salary payable in either monthly instalments or as a lump sum. The Company will also pay
for any benefit which the individual would have been eligible for until the date of cessation had full notice been given.
The Executive Directors’ service contracts are available for inspection at Mitie’s registered office, the head office and at the
AGM. There are no other provisions for compensation on termination of employment set out within the contracts of the
Executive Directors.
As reported in last year’s Annual Report, Bill Robson stepped down from the Mitie Group plc Board on 31 July 2014 and has stayed
within the group as Managing Director of our Property Management division.
For future Directors, notice periods will not exceed 12 months, save in exceptional circumstances and should a longer than 12 month
notice period be necessary, the Committee would expect this to reduce to a 12 months’ notice period over time.
The effective dates of the service contracts of the Executive Directors are set out below:
Date of agreement
Ruby McGregor-Smith, CBE
01-Apr-03
Suzanne Baxter
10-Apr-06
Bill Robson1
01-Apr-03
Note:
1 Bill Robson retired as an Executive Director on 31 July 2014.
66
Mitie Group plc
Strategic Report
Governance
Financial
Our policy on loss of office
The rules of the Annual Bonus Plan and LTIP set out what happens to awards if a participant ceases to be an employee or Director
of Mitie before the end of a vesting period, with the relevant service contracts also determining the general treatment of Executive
Directors on cessation.
Regarding the annual bonus, in the event that the participant ceases to be an eligible employee before the date the bonus is paid or
is subject to notice of termination of their employment on the bonus date, they shall forfeit all entitlement to the bonus in respect of
that financial year, unless the Committee in its absolute discretion determines otherwise. The deferred shares will vest in full on the
date of cessation for ‘good leaver’ reasons, otherwise the shares will lapse on cessation.
Generally, any outstanding LTIP awards will lapse on cessation of employment, except in certain circumstances. Specifically, if the
Executive ceases to be an employee or Director as a result of death, injury, disability, redundancy, retirement, the sale of the business
or company that employs the individual or any other reason at the discretion of the Committee, then they will be treated as a ‘good
leaver’ under the LTIP rules in which case awards will vest either on cessation or, for leavers within the first three years, the normal
vesting dates subject to the performance conditions and, if the Committee determines, a pro-rata reduction. A good leaver has
12 months to exercise their vested awards structured as options following the cessation of employment.
In addition, and consistent with market practice, in the event of termination of an Executive Director’s employment, the Company
may settle any claims that may arise, pay a contribution towards the individual’s legal fees and fees for outplacement services
as part of a negotiated settlement. Any such fees would be disclosed as part of the detail of termination arrangements. Should it
become necessary to make additional payments in respect of such professional fees that were not ascertained at the time of
reporting, the Company may do so up to a level of a further £10,000. For the avoidance of doubt, the policy does not include an
explicit cap on the cost of termination payments.
Our policy on external appointments
The Board recognises that the appointment of Executive Directors to Non-Executive positions at other companies can be beneficial
both for the individual Director and the group through the broadening of their experience and knowledge. Ruby McGregor-Smith CBE
received fees of £56,167 pa in respect of her role as a Non-Executive Director of Michael Page International plc and £15,000 for her
role as Non-Executive Director of the Department of Culture, Media and Sport. Suzanne Baxter received fees of £55,000 for her
role as a Non-Executive Director of WH Smith plc. Both individuals are entitled to retain any fees earned.
Our policy on the recruitment of a new director
In cases of a new hire, the Committee will typically align the Executive Director’s remuneration package to the above remuneration
policy. However, where appropriate, the Committee retains discretion to make decisions outside of policy to facilitate hiring key talent
as set out below.
Base salaries will be set based on the individual’s role and experience, with consideration given to internal equity.
Benefits will be provided in line with those offered to other employees at the similar level, with relocation expenses/arrangements
provided if necessary. In the case of new Executive Directors, individuals will be given a choice of either participation in a defined
contribution pension or a cash allowance in lieu of pension.
The maximum level of variable pay that may be offered on an on-going basis and the structure of remuneration will be in accordance
with the approved policy detailed above (i.e. for the CEO an aggregate maximum of 360% of salary – 160% annual bonus and up to
200% for LTIP, for the Group Finance Director an aggregate maximum of 335% of salary – 135% annual bonus and up to 200% for
LTIP). This limit does not include the value of buy-out arrangements.
The above policy applies to both internal promotions to the Board or an external hire. For external hires, if it is necessary to buy-out
existing incentive pay or benefit arrangements (which would be forfeited on leaving their previous company), this would be provided
taking into consideration relevant factors such as the commercial value of the amount forfeited from the previous employer, the
performance conditions (e.g. the likelihood of achieving those) and timing (e.g. where the award is in the vesting cycle). Buy-out
awards, if used, will be granted using Mitie’s existing share plans, although, if necessary, additional buy-out awards may be made on
more bespoke terms regarding matters such as vesting and performance conditions as permitted under the Listing Rules (provision
9.4.2.). The Committee has placed a maximum limit on any such buy-out awards which it may be necessary to make; these will not
exceed the commercial value of the amount forfeited from the previous employer.
In the case of an internal promotion to the Board, any outstanding variable pay awarded in relation to the individual’s previous role
will be allowed to pay out according to its terms of grant.
On appointment of a new Chairman or Non-Executive Director, their fees will be set taking into account the existing fee structure.
Mitie Group plc
67
Our policy on Non-Executive Director remuneration and appointment terms
The Chairman and Non-Executive Directors receive an annual fee which is paid in monthly instalments. The Chairman’s fee is set
by the Remuneration Committee and the fees for the Non-Executive Directors are approved by the Board, on the recommendation
of the Chairman and the Chief Executive. The Non-Executive Directors are paid a basic fee with an additional fee for chairing
a Committee, together with expenses incurred in carrying out their duties on behalf of the Company. Non-Executive Directors
are not eligible to participate in any of the Company’s share schemes or the Annual Bonus Plan, nor do they receive pension or
ancillary benefits.
The terms of appointment of the Non-Executive Directors are available for inspection at Mitie’s registered office, the head office
and at the AGM. The Non-Executive Directors are engaged for an initial term of three years which is terminable on either three
or six months’ notice and thereafter on a rolling term. They are also subject to annual re-election.
Non-Executive Directors’ engagement terms
Additional duties
Roger Matthews
Chairman;
Chairman of Nomination Committee
David Jenkins
Senior Independent Director;
Chairman of Audit Committee
Larry Hirst, CBE
Crawford Gillies
Jack Boyer1
Chairman of Remuneration Committee
Date of
engagement
Initial
contract
term
Notice
period
04-Dec-06
3 years
6 months
31-Jan-06
3 years
6 months
01-Feb-10
3 years
3 months
12-Jul-12
3 years
3 months
01-Jun-13
3 years
3 months
Note:
1 Jack Boyer was appointed as Chairman of the Remuneration Committee on 1 October 2014.
How does the executive pay policy differ from that of other Mitie employees?
The remuneration policy for the Executive Directors is more heavily weighted towards variable pay than for other employees,
ensuring that the greater part of their pay is conditional on the successful delivery of business strategy. This helps create a clear link
between the value created for shareholders and the remuneration received by the Directors. The LTIP is limited to the most senior
employees. For employees below this level, variable pay may consist of share-based awards and annual bonus (both of which will
be based on role) and the opportunity to participate in SAYE and SIP.
How we take account of employment conditions elsewhere in the Company when setting our policy
The Remuneration Committee is responsible for overseeing the remuneration policy for the group as a whole and is mindful of
pay and employment conditions in the wider workforce within the group and externally when determining Executive remuneration.
When considering base salary increases, benefits and pension provision, the Committee reviews overall levels and increases
offered to employees across the group. The Committee also reviews information with regard to share awards made to other senior
management of the group, noting that (i) all employees can participate in the SAYE and SIP, and (ii) participation in the LTIP is limited
to a selection of senior executives. However, consistent with general practice, the Committee does not consult with employees in
preparing the policy or its implementation.
How we take account of shareholder views when setting our policy
The Committee is committed to a continuing discussion with major shareholders and obtains their views when any significant
changes to remuneration arrangements are being proposed. A recent example of this was the consultation with major shareholders
undertaken in relation to the proposed new pay policy and LTIP.
Remuneration Committee and its Advisers
The Remuneration Committee seeks and considers advice from independent remuneration advisers where appropriate.
FIT Remuneration Consultants (‘FIT’) were appointed by the Committee in December 2013 to provide independent advice
on executive remuneration. FIT attended Committee meetings and provided advice and analysis on executive remuneration.
The advisers provide no other services to the Company and also comply with the Code of Conduct for Remuneration Consultants.
FIT’s total cost of advice for the year they advised was £132,340 (such fees being charged in accordance with FIT’s standard terms
of business).
The Committee specifically considered the position of FIT and was satisfied that the advice it received was objective and
independent, given that no other services were provided to the Company.
68
Mitie Group plc
Strategic Report
Governance
Financial
Annual Report on Remuneration
Executive Director remuneration (subject to audit)
The table below reports a single figure for total remuneration for each Executive Director for the financial years ending
31 March 2014 and 31 March 2015.
Year
Salary
Benefits
2015
£550,000
£26,864
2014
£526,000
£20,251
Suzanne Baxter
2015
£350,000
£23,450
2014
£335,000
£18,009
1
Bill Robson
Total Remuneration
Annual Bonus
LTIP
Pension
Other
Total
£440,000 £330,271
£145,851
£2,430
£1,495,416
–
£142,901
£148
£1,447,266
£218,750 £210,344
£757,966
£98,696
£2,430
£903,670
£95,973
£148
£860,678
£411,548
–
2015
£110,000
£5,686
£68,750
£161,159
£45,211
£2,430
£393,236
2014
£330,000
£18,035
£405,405
–
£115,198
£148
£868,786
2015
£2,792,322
2014
£3,176, 730
Notes:
1 Bill Robson stepped down as an Executive Director on 31 July 2014. The information in the table above confirms his earnings for his position as an Executive Director up to this
date. The Annual Bonus figure is the pro-rated amount relating to the year ending March 2015, for the time he was an Executive Director of the business; this will be paid to him
in May 2015.
Benefits relate to the cost to the Company of private medical cover, private fuel and the car allowance.
Bonus payable in respect of the financial year includes any deferred element at face value at the date of award. Further information about how the level of the award, for the year
ending March 2015, was determined is provided on page 71.
The value of the 2015 LTIP is based on the 2012 LTIP award, which will vest in June 2015 at a rate of 25% (valuation based on the number of shares vesting at the share price
calculated as an average over the period 1 January to 31 March 2015 and includes the value of the Dividend Equivalent to that date). The value of the 2014 LTIP was based on 2011
LTIP award which lapsed in full.
The Other column denotes the value of matching shares during the year under the Company Share Incentive Plan along with the value in respect of the intrinsic gain on the option
grant under the 2014 SAYE. In 2014 these figures were included in the figure for Benefits but have now been extracted for comparison purposes.
The pension benefits of the Directors comprise a pension supplement paid in cash in the year of 20% of salary and a capped cash
contribution to a defined benefit pension scheme of £16,104 (2014: £15,576) made by Mitie for each of the Directors.
The disclosures above in respect of pension benefits comprise the 20% pension supplement along with an actuarially derived value
of the annually accrued pension benefits under the defined benefit pension scheme, net of personal contributions made by each
Director. This calculation is known as the net pension input amount and is affected by the number of years of scheme membership,
the value of annual accrued benefits at each year end, inflation and a prescribed multiplication factor of 20.
The net pension input amount for the Directors included in the pension benefits disclosed above was:
Year
Years of scheme membership at 31 March
£
2015
12
35,851
2014
11
37,701
Suzanne Baxter
2015
3
28,696
2014
2
28,973
Bill Robson
20151
23
23,211
2014
22
49,198
Note:
1 The 2015 figures for Bill Robson relate to the pension accrued up to 31 July when he was an Executive Director.
Mitie Group plc
69
Non-Executive Directors’ fees (subject to audit)
The fees for the Non-Executive Directors for the financial year ended 31 March 2015 and 31 March 2014 are set out below:
Non-Executive Directors’ remuneration
Base salary/fees £’000
Roger Matthews
David Jenkins
Larry Hirst, CBE
2
20151
2014
185
140
67
53
52
46
Crawford Gillies
56
49
Jack Boyer3
56
38
–
37
Terry Morgan, CBE4
5
Graeme Potts
Total
–
27
416
390
Notes:
1 All amounts were paid in cash and no other benefits were received in the year.
2 Crawford Gillies was Remuneration Committee Chairman until 30 September 2014.
3 Jack Boyer was appointed as a Non-Executive Director on 1 June 2013 and as Remuneration Committee Chairman on 1 October 2014.
4 Terry Morgan retired as a Non-Executive Director on 31 October 2013.
5 Graeme Potts retired on 9 July 2013.
What happened in 2014/2015 and changes for 2015/2016
Base salary and benefits
Effective 1 April 2014, the Remuneration Committee awarded average salary increases of 4.6% for two of the Executive Directors,
resulting in the following base salaries being payable:
a Ruby McGregor-Smith, CBE – £550,000
a Suzanne Baxter – £350,000
Bill Robson received no increase and his salary remained at £330,000. Bill subsequently stepped down as an Executive Director
of the Group on 31 July 2014 and his salary was amended accordingly.
Commencing 1 April 2015 and effective for the remainder of the financial year, the Committee awarded salary increases of 2.9%
for the Executive Directors, resulting in the following base salaries being payable:
a Ruby McGregor-Smith CBE – £565,950
a Suzanne Baxter – £360,150
A review of Non-Executive Director fees was undertaken in March 2014. The broad policy is for the fees to be reviewed every three
years. The fees for the year ending March 2016 remain unchanged and are as follows:
Base salary/fees £’000
20161
2015
185
185
52
52
Senior Independent Director
7
7
Chairman of a Committee
8
8
2
Chairman fees
3
Non-Executive Director core fees
Additional fees
Notes:
1 The core fee of £52,000 paid to each Non-Executive Director (including the Chairman) will total £260,000 for the year ending March 2016 which is unchanged from the year ended
March 2015. Total fees including additional duties are expected to amount to £416,000 for the year ending March 2016 (£416,000 for the year ended March 2015).
2 The Chairman’s fee is inclusive of the Non-Executive Directors core fee and no additional fees are paid to the Chairman where he is a Chairman, or is a member of, other committees.
3 For Non-Executive Directors, individual fees comprise the core fee and additional supplemental fees for chairing committees where a greater responsibility and time commitment
is required.
Benefits are as described in the Remuneration policy table. No changes are planned for the year ending March 2016.
70
Mitie Group plc
Strategic Report
Governance
Financial
Pension (subject to audit)
Pension is as described in the Remuneration policy table. The pension entitlement for each Director is as follows:
Defined benefit pension scheme transfer values
Normal retirement
date
Transfer value
31 March 2014
£’000
Contributions
made by the
Director
£’000
Increase in
accrued pension
over the year
£’000
Transfer value
of pension
increase (after
inflation, net of
contributions)
£’000
22/02/2028
238
0
3
32
307
Suzanne Baxter
16/04/2033
34
0
2
20
59
11/08/2015
913
0
3
43
1,166
1
Bill Robson
Transfer value
31 March 2015
£’000
Note:
1 Benefits for Bill Robson are valued up to the point he stepped down as an Executive Director of the business on 31 July 2014.
The pension benefits of the Executive Directors are based on a pensionable salary capped at £146,400. The Company made
contributions to the group’s defined benefit scheme on behalf of the three Directors who are members of the scheme at a rate of
11% of the value of the benefit cap. In addition, the Directors received a salary supplement as described in the policy table. The normal
retirement age for the three Directors is 65 and there are no additional benefits available to the Directors upon early retirement.
No changes are planned for the year ending March 2016.
Annual Bonus Plan
Awards in respect of the year ended March 2015 were made under the Group Annual Bonus Plan. The outcomes were determined
as set out below.
Evaluation of performance for the year ended March 2015
At the beginning of the year the Committee set a range for EBITA performance for threshold, target and maximum levels of
performance. Performance against these targets was assessed at the threshold level of performance resulting in a pay-out of
c.90% of base pay for this element. However, the Committee, in conjunction with the three Executive Directors, determined that
the financial element should be reduced to half of the threshold level, recognising the statutory result.
The Committee also set objectives relating to organic growth, people management and strategy. Key deliverables for the
year included:
a To deliver organic revenue growth at a level that out performs sector comparatives for UK businesses;
a To strengthen the talent pipeline;
a Invest in sector specialisation to maximise organic growth; and
a Define and implement a plan for operational efficiencies.
Having evaluated a range of outcomes and indicators of performance, the Committee determined that overall progress was good
and warranted a pay-out of 35% of salary for the Chief Executive and 17.5% of salary for the other Executive Directors.
Therefore, based on the Committee’s assessment of achievement for both the financial and strategic objectives, the bonus was,
following the reduction referred to above, calculated as follows:
Financial performance
Strategic performance
Total bonus payable
% of salary
payable at
threshold
% of salary
payable at
on-target
% of salary
payable at
maximum
% of salary
payable
% of salary
payable at
threshold
% of salary
payable at
maximum
% of salary
payable
Total bonus
£’000
Cash
£’000
Deferred
shares
£’000
90
100
110
45
0
50
35
440.0
440.0
0.0
Suzanne Baxter
90
100
110
45
0
25
17.5
218.8
218.8
0.0
90
100
110
45
0
25
17.5
68.8
68.8
0.0
1
Bill Robson
Note:
1 The bonus calculated for Bill Robson relates to the bonus he earned for the period up to 31 July 2014 when he was an Executive Director.
Mitie Group plc
71
Achievement against financial targets for the year ended March 2015
The financial performance for the organisation to March 2015 was assessed against a threshold of £131m, a target of £135m and a
maximum of £139m. The achievement was £131.8m reflecting the EBITA before the settlement of a legacy pension cost. This would
have generated a payout of 92.0% of salary before the reduction by the Committee.
Achievement against financial targets for the year ended March 2014
In the Report & Accounts for the year ended March 2014 we made a commitment to disclose the financial targets that were used
to determine the level of performance for the Annual Bonus Plan in respect of that year.
The financial performance for the organisation to March 2014 was assessed against a threshold of £123.1m a target of £126.9m
and a maximum of £130.7m; performance achieved was £127.5m and this equated to 100.5% of the target.
For the year ending March 2016, there are some changes proposed to the structure of the Annual Bonus Plan, details of which can
be found in the table below:
Financial performance
Strategic performance
Total bonus payable
% of salary
payable at
threshold
% of salary
payable at
on-target
% of salary
payable at
maximum
% of salary
payable at
threshold
% of salary
payable at
maximum
% of salary
payable at
maximum
60
90
110
0
50
160
Suzanne Baxter
60
90
110
0
25
135
The financial and strategic targets for 2015/16 are not disclosed at this time as they are considered commercially sensitive.
However, full disclosure of the above financial targets for 2015/16 will be provided in next year’s report.
Details of LTIP vesting in June 2015 (2012 award)
The Committee assessed the outcome of the 2012 LTIP awards against the performance condition of adjusted EPS growth (%) pa.
Number of shares capable of vesting was determined based on the following scale:
EPS% growth
% of award vesting
10% or more
100%
Between 5% and 10%
On a straight-line basis between 25% and 100%
5%
25%
Less than 5%
0%
For the performance period, adjusted EPS growth achieved the threshold at 5% and therefore resulted in vesting at a level of 25% of
the original award made. Adjusted EPS excludes the impact of IAS19 pensions accounting changes and the settlement of a legacy
pension cost.
72
Mitie Group plc
Strategic Report
Governance
Financial
LTIP awards granted in June 2014
Awards granted will vest depending on performance against four weighted measures assessed over three years:
Vesting of portion of the award
(performance period 3 years ending 31 March 2017)
Performance measure
Weighting
Performance range
Absolute Earnings Per
Share (EPS) growth
20% of
the award
3% – 8% pa
Zero vesting if adjusted EPS growth is less than 3% pa.
If performance is equal to 3%, 25% of the award will vest.
If Mitie achieves 8% EPS growth pa, all the awards will
vest. Between these two points the proportion of awards
vesting will be determined on a linear sliding scale basis.
Relative Total Shareholder
Return (TSR)
20% of
the award
Outperformance against
FTSE 350 Support
Services index
Zero vesting if Mitie’s TSR performance is less than the
median of the index. If Mitie’s TSR performance is equal to
the median of the index, 25% of the award will vest and if it
exceeds the index median TSR by 10% pa or more, all the
awards will vest. Between these two points the proportion
of awards vesting will be determined on a linear sliding
scale basis. An underpin condition for underlying financial
performance also applies.
30% of
the award
3% – 6% pa with a financial
underpin based on the
achievement of target
margin of 5.5% pa
Zero vesting if organic revenue growth is less than 3% pa.
If performance is equal to 3% pa, 25% of the award will
vest. If Mitie achieves 6% organic growth pa, all the awards
will vest. Between these two points, the proportion of
awards vesting will be determined on a linear sliding scale
basis. Entire portion of award is subject to Mitie achieving
an average 5.5% margin in the performance period.
Cash conversion
30% of
the award
75% – 85% pa
Zero vesting if cash conversion is less than 75% pa. At 75%,
25% of the award will vest. 70% of the award will vest if
Mitie achieves 80%. Full vesting for this portion will occur if
85% pa is achieved. Between 75% and 80% and 80% and
85%, the proportion of awards vesting will be determined
on a linear sliding scale basis.
Details of the awards made to the Executive Directors under the LTIP (granted as nil cost options) are summarised below, with further
details given in the table on outstanding share interests on page 76.
What was granted in June 2014 (subject to audit)
Award
Ruby McGregor-Smith, Performance
CBE
Type
Nil-cost
option
Number of
shares
Face
value1
(£000’s)
% of salary
Performance
condition2
Performance
period
% vesting at
threshold
345,261
£1,100
200%
20%
Absolute
Earnings
Per Share
3 financial
years
ending
31 March
2017
25%
Suzanne Baxter
Performance
219,711
£700
200%
20%
Relative
TSR
Bill Robson
Performance
103,578
£330
100%
30%
Organic
Revenue
Growth
30% Cash
Conversion
Notes:
1 Face value was calculated based on the grant date share price of 318.60p on 30 June 2014.
2 Performance conditions are set out in the table at the top of this page.
Mitie Group plc
73
2015 awards will be made under a replacement LTIP, as outlined on page 64. The same basic approach to the performance
conditions described above will apply to these 2015 awards, with the actual targets being as follows:
Performance measure
Weighting
Vesting of portion of the award
(performance period 3 years ending 31 March 2018)
Performance range
Absolute Earnings Per Share 20% of the
(EPS) growth
award
3% – 8% pa
Zero vesting if adjusted EPS growth is less than 3% pa.
If performance is equal to 3%, 25% of the award will vest.
If Mitie achieves 8% EPS growth pa, all the awards will
vest. Between these two points the proportion of awards
vesting will be determined on a linear sliding scale basis.
Relative Total Shareholder
Return (TSR)
20% of the
award
Outperformance against
FTSE 350 Support
Services index
Zero vesting if Mitie’s TSR performance is less than the
median of the index. If Mitie’s TSR performance is equal to
the median of the index, 25% of the award will vest and if it
exceeds the index median TSR by 10% pa or more, all the
awards will vest. Between these two points the proportion
of awards vesting will be determined on a linear sliding
scale basis. An underpin condition for underlying financial
performance also applies.
30% of the
award
3% – 6% pa with a financial
underpin based on the
achievement of target
margin of 5.5% pa
Zero vesting if organic revenue growth is less than 3% pa.
If performance is equal to 3% pa, 25% of the award will
vest. If Mitie achieves 6% organic growth pa, all the awards
will vest. Between these two points, the proportion of
awards vesting will be determined on a linear sliding scale
basis. Entire portion of award is subject to Mitie achieving
an average 5.5% margin in the performance period.
Cash conversion
30% of the
award
75% – 85% pa
Zero vesting if cash conversion is less than 75% pa. At 75%,
25% of the award will vest. 70% of the award will vest if
Mitie achieves 80%. Full vesting for this portion will occur
if 85% pa is achieved. Between 75% and 80% and 80% and
85%, the proportion of awards vesting will be determined
on a linear sliding scale basis.
Awards made under the replacement LTIP will, for continuing employees, be subject to a holding period, post vesting, with 50% of the
shares being released immediately after the end of the performance period, 25% being released a year later and 25% two years later.
Loss of office payments (subject to audit)
No payments for loss of office were made to past directors during the year.
Payments to past Directors
No payments have been made to past directors, with the exception of the remuneration arrangements for Bill Robson, who remains
an employee of the business.
Change in CEO pay for the year compared to UK salaried employees
The table below sets out the change in remuneration of the Chief Executive and Mitie’s UK salaried population.
%
Chief Executive
2
Average pay based on Mitie’s UK non-contract employees
Salary
Benefits1
4.6%
32.7%
-41.9%%
5.5%
15.3%
-13.1%
Notes:
1 Includes car/car allowance, private medical and private fuel.
2 Reflects the change in average pay for salaried non-contract UK employees employed at both ended 31 March 2014 and 31 March 2015.
74
Mitie Group plc
Bonus
Strategic Report
Governance
Financial
Relative spend on pay
The table below shows both the total cost of remuneration in the group, compared with the dividends distributed and
share buybacks.
Year ended
31 March 2015
£m
Year ended
31 March 2014
£m
Change
1,150
1,137
1.1%
41
46
-10.9%
Aggregate employee remuneration
Equity dividends and share buybacks
Assessing pay and performance
In the table below we provide a summary of the Chief Executive’s single figure remuneration over the past six years, as well as the
pay out and vesting levels of our variable pay plans in relation to the maximum opportunity. This is compared with historical TSR
performance over the same period. We have chosen these indices (FTSE 250 and FTSE 350 Support Services) as they are widely
recognised and we have been members of both indices during the period:
TSR (rebased to 100)
350
Mitie
FTSE 250
FTSE 350 Support Services
300
250
200
150
100
Mar 09
Mar 10
Mar 11
Mar 12
Mar 13
Mar 14
Mar 15
2010
2011
2012
2013
2014
2015
£1,703,031
£2,324,443
£2,431,773
£2,105,131
£1,447,266
£1,495,416
Annual bonus element (actual as a % of max)
100%
100%
100%
85%
90%
50%
LTIP element (actual vesting as a % of max)
100%
100%
87.2%
57.2%
0%
25%
Single figure remuneration
The reporting requirements state that the time period for the above TSR chart be lengthened to ten years over time and we have
therefore included a ten year chart below:
TSR (rebased to 100)
350
Mitie
FTSE 250
FTSE 350 Support Services
300
250
200
150
100
Mar 05
Mar 06
Mar 07
Mar 08
Mar 09
Mar 10
Mar 11
Mar 12
Mar 13
Mar 14
Mar 15
Percentage
of base salary
achieved for
guideline2
Compliance
with the share
ownership
guidelines
Share ownership
Number of
ordinary shares
owned as at
31 March 2015
Value of target
holding at 1 May
2014 based on %
of salary as at
31 March 2015
Value of
holding for
guideline1
566,283
£825,000 £1,634,066
297%
Achieved
Suzanne Baxter
214,553
£525,000
£619,114
177%
Achieved
£495,000 £4,688,237
1421%
Achieved
Bill Robson3
1,624,701
Notes:
1 Calculated at a share price of 288.56p which is the 5 day average share price up to 30th April 2015, required to be used for the guideline.
2 Against the guidelines in force for the year to 31 March 2015 of 150% of salary. In the following year, this increases to 200%.
3 Values for Bill Robson are based on his salary on 1 April 2014.
Mitie Group plc
75
Directors’ outstanding share interests (subject to audit)
The following tables provide the outstanding share interests for the Executive Directors:
Directors’ interests in options granted under the Mitie Group plc 2011 Save As You Earn Scheme1
Year of Grant
Options as at
31 March 2014
Exercised
in year
Granted
in year
Lapsed
in year
Options as at
31 March 2015
Exercise
price p
Earliest normal
exercise date
2012
4,035
–
–
–
4,035
223.0
Dec-15
2014
–
–
3,459
–
3,459
260.2
Sep-17
2012
4,035
–
–
–
4,035
223.0
Dec-15
Suzanne Baxter
2014
–
–
3,459
–
3,459
260.2
Sep-17
Bill Robson
2012
4,035
–
–
–
4,035
223.0
Dec-15
2014
–
–
3,459
–
3,459
260.2
Sep-17
Notes:
1 Executive Directors were invited to participate in the 2011 SAYE scheme and are contributing the maximum amount of £250/month over a 36 month period starting December 2012
and £250/month starting 1 September 2014.
2 Details for Bill Robson have been included although the SAYE contract started in September 2014 after he stepped down as an Executive Director.
Directors’ interests in shares purchased under the Mitie Group plc Share Incentive Plan 2011
Shares
outstanding as at
31 March 20141
Number of
Number of
partnership shares matching shares
2
acquired in year awarded in year3
Total number
of shares
outstanding at
31 March 2015
1,874
663
57
2,594
Suzanne Baxter
1,874
663
57
2,594
Bill Robson
1,874
663
57
2,594
Notes:
1 Figure comprises 1,714 purchased shares plus 160 matching shares.
2 Shares were acquired at a market price of 319.3p on 13 May 2014. Executive Directors contributed the full annual amount of £1,800 permitted under the Plan. Shares acquired
through dividend reinvestment (13 August 2014 and 2 February 2015) have also been included.
3 Matching shares were purchased in the market at a price of 319.3p on 13 May 2014. Awards of Matching Shares must in normal circumstances be held for at least three years from
the date of award and are subject to forfeiture if corresponding Partnership Shares are withdrawn during that period.
4 The market price of the Company’s shares as at 31 March 2015 was 276.0p. The highest and lowest prices during the year were 335.3p and 265.3p respectively.
Directors’ interests in options granted under the Mitie Group plc 2001 Executive Share Option Scheme
ESOS options
outstanding
as at
31 March 2014
Granted
during
the year
Lapsed
during
the year
ESOS options
outstanding
Exercised
as at
during
the year 31 March 20151
Exercise
price
p
Exercisable between
Unapproved scheme
100,000
–
–
–
100,000
162
Jun-08
Jun-15
Unapproved scheme
100,000
–
–
–
100,000
191
Jun-09
Jun-16
Suzanne Baxter
Unapproved scheme
35,000
–
–
–
35,000
191
Jun-09
Jun-16
Approved scheme
15,000
–
–
–
15,000
191
Jun-09
Jun-16
Note:
76
Mitie Group plc
Strategic Report
Governance
Financial
Directors’ interests in shares granted under the Mitie Group plc 2010 Deferred Bonus Plan
Shares
outstanding
as at
31 March
2014
Granted
during
the year
Lapsed
during
the year
2012
45,883
–
–
45,883
2013
71,616
–
–
–
71,616
May-15
2014
–
71,670
–
–
71,670
May-16
2012
29,239
–
–
29,239
–
–
2013
19,842
–
–
–
19,842
May-15
2014
–
23,651
–
–
23,651
May-16
2012
28,789
–
–
28,789
–
–
2013
19,546
–
–
–
19,546
May-15
2014
–
23,298
–
–
23,298
May-16
Year of
grant1
Suzanne Baxter
Bill Robson
Exercised
during
the year2,3
Shares
outstanding
as at
31 March
20154
Earliest
exercise date
–
–
Notes:
1 The 2012 award was granted on 28 May 2012 at a grant price of 277.9p.
The 2013 award was granted on 28 May 2013 at a grant price of 260.0p.
The 2014 award was granted on 28 May 2014 at a grant price of 323.7.p.
2 Awards vested on 27 May 2014 and were transferred to the participant. At the date these awards vested the market price of the Company’s shares was 323.7p.
3 The awards attract dividend equivalents which are accrued from grant date and paid out on vesting.
Directors’ interests in nil-cost options granted under the Mitie Group plc 2007 Long Term Incentive Plan
Year of
grant1
Ruby McGregorSmith, CBE
Suzanne Baxter
LTIP options Granted during
the year at
outstanding at
31 March 2014 318.60p/ share
Exercised
LTIP options
during outstanding at
the year2 31 March 20153
Exercise
price
Exercisable between
2011
446,663
–
446,663
–
–
Nil-cost
–
–
2012
414,336
–
–
–
414,336
Nil-cost
Jun-15
Jun-16
2013
527,371
–
–
–
527,371
Nil-cost
Jun-16
Jun-17
2014
–
345,261
–
–
345,261
Nil-cost
Jun-17
Jun-18
2011
284,638
–
284,638
–
–
Nil-cost
–
–
2012
263,883
–
–
–
263,883
Nil-cost
Jun-15
Jun-16
2013
268,698
–
–
–
268,698
Nil-cost
Jun-16
Jun-17
2014
Bill Robson
Lapsed
during
the year
219,711
–
–
219,711
Nil-cost
Jun-17
Jun-18
2011
280,259
–
280,259
–
–
Nil-cost
–
–
2012
259,945
–
–
–
259,945
Nil-cost
Jun-15
Jun-16
2013
264,688
–
–
–
264,688
Nil-cost
Jun-16
Jun-17
2014
–
103,578
–
–
103,578
Nil-cost
Jun-17
Jun-18
Notes:
1 The performance criteria applicable to the 2011 award: lower and upper performance thresholds of 7% pa and 13% pa respectively.
The performance criteria applicable to the 2012 award: lower and upper performance thresholds of 5% pa and 10% pa respectively.
The performance criteria applicable to the 2013 award reflect a basket of measures relating to TSR, EPS, organic growth and cash conversion.
The performance criteria applicable to the 2014 award are the same as those for the 2013 award and are provided on page 73.
The Directors acquired a conditional joint beneficial interest with the Mitie Employee Benefit Trust 2008 in the shares awarded in 2011 and 2012 under the LTIP. The full beneficial
interest will transfer to the Director only if the performance criteria applicable to the award are met.
2 The Committee assessed the extent to which the performance conditions applicable to the 2011 awards were met and assessed that they did not achieve the threshold level of
performance and the award lapsed in full. The Committee also assessed the extent to which the performance conditions applicable to the 2012 awards were met and assessed that
the scheme should vest at 25% of the original award granted.
Mitie Group plc
77
Director share ownership
Number of Ordinary Mitie shares
beneficially owned as at
31 March 2015
Number of Ordinary Mitie shares
beneficially owned as at
31 March 2014
(or date of appointment if later)
566,283
565,403
Suzanne Baxter
214,553
213,673
1,624,701
1,623,821
Executive Directors
Bill Robson
Non-Executive Directors
Roger Matthews
100,000
100,000
David Jenkins
50,000
50,000
Larry Hirst, CBE
25,000
25,000
Crawford Gillies
10,000
10,000
5,000
2,000
n/a
0
n/a
15,000
Jack Boyer
Terry Morgan, CBE1
2
Graeme Potts
Notes:
1 Terry Morgan CBE retired as a Non-Executive Director on 31 October 2013.
2 Graeme Potts retired as a Non-Executive Director on 9 July 2013.
Share dilution
The Company manages dilution rates within the ABI guidelines of 10% of issued Ordinary share capital in respect of all employee
schemes and 5% in respect of discretionary schemes. In calculating compliance with these guidelines the Company allocates
available ‘headroom’ on a ten year flat-line basis, making adjustments for projected lapse rates and projected increases in issued
share capital.
LTIP awards are satisfied through the market purchase of shares held by the Mitie Group plc Employee Benefit Trust 2008.
The potential dilution of the Company’s issued share capital is set out below in respect of all outstanding awards granted under
the Company’s equity-based incentive schemes which are to be satisfied through the allotment of new shares or Treasury shares.
Share dilution at 31 March 2015
Dilution %
All share plan (maximum 10%)
7.9%
Discretionary share plans (maximum 5%)
4.5%
Shareholder voting
Mitie remains committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. During the financial
year there have been continued discussions with major shareholders relating to the proposed changes to the Remuneration Policy.
Where there are substantial votes against resolutions in relation to Executive Directors’ remuneration, the group seeks to understand
the reasons for any such vote, and will detail here any actions in response to it.
Number of Votes
Votes in favour
Votes against
Votes withheld
2014 Directors’ Remuneration policy
2014 AGM
238.9m
98.7%
2.1m
0.9%
0.9m
0.4%
2014 Directors’ Remuneration report
2014 AGM
173.8m
71.9%
65.5m
27.1%
2.5m
1.0%
The Committee understands that votes against the remuneration report resolution related to the lack of explanation around certain
elements of 2013 remuneration (e.g. the reduction in the EPS targets in the LTIP and the CEO’s exceptional LTIP award). We have
sought to address these issues going forward as part of the review process conducted during the year as explained in the Chairman’s
Statement on page 58.
78
Mitie Group plc
Strategic Report
Governance
Financial
Principal group activities
The Company is the holding company of the group. The principal activity of the Company is to provide management services to
the group. The group’s activities are focused on the provision of strategic outsourcing services. The detailed strategy for the group
can be found on pages 10 to 13 of the Strategic report. Further details of the subsidiary undertakings of the Company principally
affecting the profits or net assets of the group in the reporting period are listed in Note 39 to the financial statements.
The group operates in the UK, the Republic of Ireland, the Isle of Man, Guernsey, Jersey, Germany, France, Finland, Norway,
Sweden, the Netherlands, Spain, Poland, Switzerland, Belgium, Nigeria, Kenya, Ghana and UAE.
Shares and shareholders
Share capital and powers of shareholders
The group is financed through both equity share capital and debt instruments. Details of the Company’s share capital are given in
Note 30 to the financial statements and the detail of its debt instruments is set out in Note 29 to the financial statements.
The Company has a single class of shares being 2.5p ordinary shares (‘Ordinary shares’). The Ordinary shares have no right to any
fixed income and each share has the right to one vote per share at general meetings of the Company. Under the Company’s Articles
of Association, holders of Ordinary shares are entitled to participate in any dividends pro-rata to their holding.
In accordance with the Articles of Association, the Board may propose and pay interim dividends and recommend a final dividend
for approval by the shareholders at the AGM. A final dividend may be declared by the shareholders in a general meeting by ordinary
resolution, but such dividend cannot exceed the amount recommended by the Board.
The Articles of Association can be amended in accordance with its provisions, the Companies Act and related legislation.
Powers of the Company to issue or buy back its own shares
At the 2014 AGM shareholders authorised:
a the Directors to allot Ordinary shares up to an aggregate nominal amount of £3,374,263 representing one-third of the issued
share capital plus 12,395,869 Ordinary shares representing the outstanding commitment in respect of options granted under
Mitie’s share schemes (such total equating to 40.15 % of the issued share capital as at 31 March 2014);
a the dis-application of pre-emption rights over allotted shares up to an aggregate nominal value equal to £ 466,905 or a maximum
18,676,200 Ordinary shares (representing 5% of the issued share capital as at 31 March 2014); and
a the Company to make market purchases of its own shares up to a total of 37,352,400 Ordinary shares (representing 10%
of the issued share capital as at 31 March 2014).
Further details of these authorisations are available in the notes to the 2014 Notice of AGM and shareholders are referred to
the 2015 Notice (both are available at www.mitie.com/investors) which contains similar provisions in respect of the Company’s
share capital.
During the reporting period, the Directors utilised the above authorities to allot 1,862,179 Ordinary shares to an aggregate nominal
amount of £46,554 to employees participating in Mitie’s share schemes and to minority shareholders in consideration for shares
purchased in connection with Mitie Model investments.
The Company undertook market purchases of 3,746,160 of its own shares during the reporting period representing 1.0% of the
called-up share capital of the Company as at 31 March 2014. The shares equated to an aggregate nominal value of £93,654 and
the total aggregate amount paid was £10,544,401. The shares purchased are held in treasury so that they can be re-issued at a
later date and used to hedge future share scheme issues. The total number of shares held by the Group in treasury as at the end
of the reporting period is 9,546,160.
It is not Mitie’s current intention to operate a formal share purchase programme in 2015; however market purchases may be made
to offset share scheme exercise activity, subject to the prior approval of the Board.
Mitie Group plc
79
Significant interests in the Company’s share capital
As at 15 May 2015, the Company has been notified of the following significant holdings of voting rights in its shares under the
Disclosure and Transparency Rules:
Invesco Limited
FMR LLC
Number of
Ordinary shares
Percentage of
share capital
18,642,841
5.06
18,000,006
5.05
Massachusetts Financial Services Company
18,549,276
5.02
Heronbridge
18,366,728
5.00
14,470,331
3.99
The Capital Group
Details of the Directors’ interests in the share capital of the Company are detailed within the Directors’ remuneration report on pages
75 to 78.
Restrictions on the trading of Mitie shares
Ordinary shares that are issued as consideration upon the acquisition by the Company of the shares of minority shareholders
in subsidiaries of the group that participate in the Mitie Model have contractual restrictions placed upon them that both prevent
the transfer of such shares and/or attach specific claw-back provisions for periods of up to two years following allotment.
Recipients of Company shares received in this way are contractually restricted from selling the shares issued as consideration,
generally for a maximum of two years. The Board believes that this is a unique business model that has aided Mitie’s past
performance and continues to ensure a close alignment of interests between Company shareholders and the management
and employees of the group.
There are no specific restrictions on the size of any shareholding or on the transfer of shares, which are both governed by the
provisions of the Articles of Association of the Company (available at http://www.mitie.com/investors/shareholder-services/
corporate-governance).
The Directors are not aware of any agreements entered into by Company shareholders that may result in restrictions on the
transfer of securities or on voting rights. No person has any special rights of control over the Company’s share capital.
Details of employee share schemes are set out below and in Note 35 to the Accounts.
The group operates a Share Trading and Insider Dealing Policy which provides a framework to identify persons who may have
access to inside information relating to the Company and explains the rules applicable to them for dealing in Company shares.
Individuals who may have access to such information are informed individually and asked to read, understand and follow the
procedures detailed in the policy.
Significant agreements – change of control
There are a number of agreements with provisions that take effect, alter or terminate upon a change of control of the Company such
as bank facility agreements, employee share scheme rules and Articles of Association of certain Mitie Model companies. None of
these are considered to be significant in terms of their likely impact on the normal course of business of the group. The Directors are
not aware of any agreements between the Company and its Directors or employees that provide for compensation for loss of office
or employment that occurs solely because of a takeover bid.
Shareholder engagement
The Board is committed to an ongoing, pro-active dialogue with institutional and private investors, to further encourage engagement
between the Company and its shareholders. A full programme, led by the Chief Executive and Group Finance Director, of
formal and informal events, institutional investor meetings and presentations are also held following the half year and full year
results announcements.
Last year, the Board appointed a capital markets advisory firm to maintain the shareholder register and assist in register analysis,
advise on investor relations strategy and obtain analyst and investor feedback. Significant importance is attached to investor
feedback on the group’s performance, and as such the Board receives an investor relations report at each Board meeting detailing
corporate news, share price activity, investor relations activity and major movements in shareholdings. The Board is also regularly
updated and is provided with investor feedback, broker updates and detailed analyst reports following the half year and full year
results presentations. The Chairman is responsible for ensuring that the Board is made aware of the issues and concerns of the
major shareholders.
The Chairman and Senior Independent Director are available for additional meetings with shareholders upon request. The Board
encourages an ongoing dialogue between the Directors and investors and as such all Directors were present at the 2014 AGM.
The Company hosted a Capital Markets Day in October 2014, which gave analysts, shareholders and other stakeholders the
opportunity to have direct discussions with Directors as well as with the Chief Executive and Group Finance Director.
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Financial
Latest group information, financial reports, corporate governance and sustainability matters, half yearly and full year results
presentations, major shareholder information and all announcements are made available to shareholders via the Mitie website
(www.mitie.com) which has a specific area dedicated to investor relations.
Electronic communications
The Directors remain committed to improving and extending the electronic methods by which the Company communicates with its
shareholders, not only allowing the latest information on the group to be provided more efficiently but recognising the environmental
benefits. The Board encourages each shareholder to join the growing number of investors electing to receive their information
electronically and further details on how to register are provided at the end of this report.
Directors
Board of Directors
The membership of the Board as at 31 March 2015 and biographical details of the Directors (including details of committee
chairmanships and other positions held) are given on pages 42 and 43. To comply with relevant provision of the Code, all Directors
other than Crawford Gillies will submit themselves for re-election at the forthcoming AGM and details are provided in the Notice of
AGM which is available at www.mitie.com/investors.
During the year, Non-Executive Director independence was considered by the Board. The Board determined that all Non-Executive
Directors as at 31 March 2015 were independent in mind and judgement, and free from any material relationship that could interfere
with their ability to discharge their duties effectively.
Director development and succession planning
The Chairman regularly meets with both the Executive and Non-Executive Directors to discuss specific director development and
training needs. The annual Board evaluation also addresses these requirements and ensures that the appropriate level of knowledge,
understanding and expertise of the Board is sufficiently maintained.
Succession planning is discussed in more detail on page 54 and 55.
Director appointments
With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association, the Code,
the Companies Acts and related legislation.
Director conflicts
The Board has a formal policy on the declaration and management of Director conflicts of interests in accordance with the Articles
of Association of the Company which has operated effectively during the reporting period. Any potential situation or transactional
conflict must be reported as soon as possible to the Chairman, the Chief Executive and the Company Secretary. Where a potential
conflict is authorised (under the statutory powers and powers granted under the Articles of Association to the Board), such conflict
is kept under ongoing review.
Director indemnities
The group maintains Directors’ and officers’ liability insurance, providing appropriate cover for any legal action brought against its
Directors and/or officers. The Articles of Association of the Company extend the protection provided to Directors in respect of any
litigation against Directors relating to their position as a Director of the Company, and specifically provide that the Company may
indemnify Directors against any liability incurred in connection with any negligence, default, breach of duty or breach of trust in
relation to the Company and that the Company may fund defence costs. Individual Directors would still be liable to pay damages
awarded to the Company in any action against them by the Company and to repay their defence costs (to the extent funded by
the Company) if their defence was unsuccessful.
Director commitments
Executive Directors are permitted to accept appointments outside the group provided permission is sought from the Chairman
and the Chief Executive and that the additional appointments do not interfere with the Directors’ ability to discharge their duties
effectively. The commitments outside the group of each Executive Director are detailed in the Directors’ remuneration report on
page 67. Executive Directors are entitled to retain any fees earned from these external appointments.
Statement of the Directors in respect of the Annual Report and financial statements
As required by the Code, the Directors confirm that they consider the Annual Report and Accounts, taken as a whole, to be
fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company’s
performance, business model and strategy. When arriving at this position the Board was assisted by a number of processes
including the following:
a the Annual Report and Accounts is drafted by senior management with overall co-ordination by the Head of Group Finance
to ensure consistency across the relevant sections;
a an internal verification process is undertaken to ensure factual accuracy;
Mitie Group plc
81
a an independent review is undertaken by the Assurance team to assess whether the Annual Report and Accounts is fair, balanced
and understandable using a set of pre-defined indicators (such as consistency with internally reported information, investor
communications and relative performance in the industry);
a comprehensive reviews of drafts of the Annual Report and Accounts are undertaken by the Executive Directors and other
senior management;
a an advanced draft is reviewed by the Company’s Group General Counsel and Company Secretary and external legal advisers; and
a the final draft is reviewed by the Audit Committee prior to consideration by the Board.
Employees
Employee involvement
The Board remains committed to fostering and developing a culture of employee involvement in the business through
communication with employees and equity participation whereby employees are enabled to build a stake in the Company through
the Company’s various equity-based incentive schemes.
The Board believes that the group’s culture of employee equity involvement is a significant driver in the group’s growth performance
and that this assists in attracting and retaining skilled and committed employees.
During the year, the group has continued to operate the Mitie Long Term Incentive Plan to incentivise and reward senior members
of the Mitie management team, the Executive Share Option Scheme for certain other employees and the Savings Related Share
Option Scheme and Share Incentive Plan which are open to all eligible employees of the group. In line with HMRC regulations the
Company increased the maximum value of SIP free shares (shares that can be awarded annually to an employee), and of SIP
partnership shares (shares an employee can purchase annually). The maximum monthly amount that an employee can contribute
to SAYE savings arrangements was also increased in line with HMRC regulations.
The group has historically grown by giving entrepreneurial managers the opportunity to create wealth by participating in the
investment risk of starting a new business, taking equity stakes at fair value in those new businesses in conjunction with Mitie and
then, dependent on a pre-agreed pricing structure, offering to sell (without requiring Mitie to buy) that stake to Mitie predominantly
in exchange for Company shares.
Under the terms of certain shareholders’ agreements and Articles of Association relating to Mitie Model companies, minority
shareholders in such companies may provide an option for the purchase by the Company of their minority shares. The mechanism
for calculating the price to be paid in respect of such transfer is transparent, on an arms-length basis, and in accordance with the
pricing structure generally applicable for other transfers under the Mitie Model. In consideration for these purchases, the Company
generally has the option to settle payment in cash or in Company shares.
The group continues to back management teams with innovative ideas for starting mutually owned businesses. The Board remains
committed to supporting growing businesses, which builds on a long history of partnering with management teams to start up new
business ventures.
During the year Mitie purchased 49% of the share capital of Direct Enquiries Holdings Limited for cash consideration of £5.6m,
of which £1.8m was paid in the current year and £3.8m was paid in April 2015.
Communication with employees
Communication with Mitie’s employees remains a high priority, and has been the focus of a comprehensive review of employee
engagement undertaken in the past year. The group communicates with employees via multiple channels, including group-wide
mailings, employee magazines and updates, employee-focused initiatives and events (including group business roadshows), media
networks and the provision of access to broadcasts of periodic financial presentations.
We are also committed to developing our use of social media tools as an effective way of communicating with our people because
we recognise that these methods can provide great ways of allowing our people to give us feedback, share ideas and engage with
the wider Mitie community.
Our social media tools are supported by a group-wide intranet system which has improved communication and information
sharing across the business and includes blog updates from Executive Board members and functional teams. Through this system
employees are able to access key information (such as online payslips), platforms (such as eLearning), and key strategic messages
as well as group news.
Each of the group’s businesses is encouraged to ensure that employees are kept informed of group and individual business
developments through the use of their own communication processes, and social networking sites continue to play an important
part in engaging and communicating with employees.
Our group-wide Mitie Stars programme continues to grow year on year, and recognises and rewards exceptional performance
displayed by Mitie people. Mitie’s Got Talent, the group-wide talent contest, continues to be supported and encourages employee
engagement and recognition. The group Sustainability report contains further details of these initiatives and is available from
www.mitie.com.
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Financial
Mitie’s employees remain actively involved in the group’s activities via an employee forum. This year the forum held two
meetings and included presentations by senior management or functional heads as requested by the employee representatives.
The Executive Board will continue to seek increasing involvement and activity of the employee representatives.
Our Speak Up service (the whistleblowing programme) continued to operate during the year, providing every employee with the
ability to confidentially report any concerns or wrong-doings that they were aware of, if they felt unable to report these via our
existing line management or human resources channels. All Speak Up contacts are individually investigated. The Audit Committee
and Board receive regular reports on the status of material Speak Up investigations.
Employee diversity and inclusion
The Board remains committed to developing a culture that encourages the inclusion and diversity of all of the group’s employees
through respecting and appreciating their differences and promoting the continuous development of employees through skills
enhancement and training programmes.
Disabled persons
As set out in our Equality, Diversity and Inclusion Policy, Mitie’s approach to business is underpinned by a belief that all individuals
should be treated fairly and have access to equal opportunities, regardless of their status. More specifically, the policy states that
no job applicant or employee should receive less favourable treatment on grounds of, among others, disability.
Finance
Financial results and dividends
A detailed commentary on the operational and financial results of the group for the year is contained within the Strategic report
and Financial review on pages 32 to 37 of this report. The profit before taxation for the financial year is £41.5m (2014: £68.4m).
a The Directors declared an interim dividend of 5.2p per Ordinary share with a total value of £18.6m (2014: £17.6m) which was paid
to shareholders on 2 February 2015.
a The Directors recommend a final dividend of 6.5p per Ordinary share with a total value of £22.9m (2014: £21.9m) based upon the
number of shares issued as at 18 May 2015. The final dividend for the year will be paid on 4 August 2015, subject to shareholder
approval at the AGM, to ordinary shareholders on the register on 26 June 2015.
a The total dividend per Ordinary share for the year ended 31 March 2015 is 11.7p (2014: 11.0p).
The Company operates a Dividend Re-investment Plan (‘DRIP’) which allows shareholders to build their holding by using the cash
dividend to purchase additional shares in Mitie. Further details on the operation of the DRIP are included at the back of this report
and are available from Mitie’s Registrar.
During the reporting period, the trustees of the Company’s Employee Benefit Trusts waived dividends on shares held.
Financing liabilities
The group’s financial instruments include bank loans, finance leases, overdrafts, US private placement loan notes and performance
guarantees. Various derivatives are used to manage interest, currency and other risks when necessary or material.
The principal objective of these instruments is to raise funds for general corporate purposes and to manage financial risk.
Further details of these instruments are given in Note 25 to the financial statements.
Events after the balance sheet date
There have not been any significant events post the balance sheet date.
Future developments
The Strategic report sets out the Board’s view on the future developments of the group.
Research and development
Given the nature of the group’s activities, it does not carry out any material research and development work.
Political donations
The company included a resolution in its 2014 AGM notice to shareholders in relation to the ability to make political donations.
Although, Mitie’s long standing policy of not making any political donations will continue, it is possible that certain routine activities
(including charitable donations) undertaken by Mitie might unintentionally fall within the wide definition of payments constituting
political donations and expenditure as set out in the Companies Act 2006. The resolution, which was duly passed, granted the
Company the relevant statutory authority until the 2015 AGM subject to a total aggregate cap for Mitie and its subsidiary companies
of £50,000.
Mitie Group plc
83
Requirements of the Listing Rules
Pursuant to listing rule 9.8.4C, the table below provides references to where the relevant information required by listing rule 9.8.4R
is disclosed.
Listing Rule requirement
Long term incentive plans
Directors remuneration report pages 57 to 78
Agreement to waive dividends
Directors’ report page 83
Carbon reporting and the environment
The Company is required to state the annual quantity of emissions in tonnes of carbon dioxide equivalent from activities for which
the group is responsible, including combustion of fuel and the operation of facilities. Details of our emissions during the year ended
31 March 2015 are set out in the Strategic report on page 41 and form part of the Directors’ report disclosures.
Going concern
The Directors acknowledge the Financial Reporting Council’s ‘Going Concern and Liquidity Risk: Guidance for Directors of UK
Companies’ issued in October 2009 and ‘An update for Directors of Listed Companies: Responding to increased country and
currency risk in financial reports’.
The group’s business activities, together with factors likely to affect its future development, performance and position are set out
in the Strategic report as referred to on pages 16 to 19. The financial position of the group, its cash flows, liquidity position and
borrowing facilities are described in the financial review, as part of the Strategic report, on pages 32 to 37. In addition, Note 26 to
the consolidated financial statements includes details of the group’s objectives, policies and processes for managing its capital, its
financial risk management objectives, details of its financial instruments and hedging activities, and its exposure to credit risk and
liquidity risk.
The group benefits from a large number of long-term contracts with a broad range of public and private customers which provide
a strong forward order book of £9.0bn and high visibility of secured work (85% of budgeted revenue) for the financial year ending
31 March 2016. These support the Directors’ belief that the group is well-placed to manage its business risks successfully.
In assessing the group’s ability to continue as a going concern, the Board reviews and approves the annual budget including
12 month forecasts of cash flows and borrowing requirements. The Board reviews the group’s sources of available funds and the
level of headroom available against its committed borrowing facilities. The group’s financial forecasts, taking into account possible
sensitivities in trading performance, indicate that the group will be able to operate within the level of its committed borrowing facilities.
On 23 July 2014, the group announced the extension of its multi-currency revolving credit facility. The group now benefits from a
committed facility of £275m, which will mature in July 2019. Together with the £252m US Private Placements, this gives the group
total committed funding of £527m, of which £261m was undrawn at 31 March.
The Directors have a reasonable expectation that the group has adequate resources to continue its operational existence for
the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the Annual Report
and Accounts.
Disclosure of information to the auditors
Each of the Directors in office as of the date of approval of this Annual Report and Accounts confirms that:
a so far as he/she is aware, there is no relevant audit information (being information required by the auditors in the preparation
of their report) of which the Company’s auditors are unaware; and
a he/she has each taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant
audit information and to establish that the Company’s auditors are aware of such information.
This confirmation is given, and should be interpreted, in accordance with Section 418 of the Companies Act 2006.
AGM
Mitie’s AGM will be held on 13 July 2015 at 2.30pm at Rothschild, New Court, St Swithin’s Lane, London EC4N 8AL.
By order of the Board
James Ormrod
Company Secretary
18 May 2015
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Financial
Directors’ report: statement of Directors’ responsibilities
Statement of Directors’ responsibilities in respect of the Annual Report,
the remuneration report and the financial statements
The Directors are responsible for preparing the Annual Report, the Directors’ remuneration report and the financial statements
in accordance with applicable law and regulations. The Directors are required to prepare the financial statements for the group
in accordance with International Financial Reporting Standards as adopted by the EU (IFRS) and Article 4 of the International
Accounting Standard (IAS) Regulation and have chosen to prepare Company financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (UK GAAP).
In the case of IFRS accounts, IAS 1 requires that financial statements present fairly for each financial year the Company’s financial
position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events
and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the
International Accounting Standards Board’s ‘Framework for the Preparation and Presentation of Financial Statements’. In virtually
all circumstances, a fair presentation will be achieved by compliance with IFRS where applicable. The Directors are also required to:
a properly select and apply accounting policies;
a present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
a provide additional disclosures when compliance with the specific IFRS requirements is insufficient to enable users to understand
the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and,
a make an assessment of the Company’s ability to continue as a going concern.
In the parent company accounts, the Directors have elected to prepare the financial statements in accordance with UK GAAP.
The Directors are required to prepare financial statements for each financial year which give a true and fair view of the state
of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the
Directors are required to:
a select suitable accounting policies and then apply them consistently;
a make judgements and estimates that are reasonable and prudent;
a state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in
the financial statements; and
a prepare financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue
in business.
The Directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the
financial position of the Company, safeguarding of the assets, the reasonable steps taken for the prevention and detection of fraud
and other irregularities, and the preparation of a Directors’ remuneration report which complies with the relevant requirements of the
Companies Acts, Listing Rules and Disclosure and Transparency Rules (DTRs).
The Directors are also responsible for the maintenance and integrity of the Company website. Financial statements published by the
Company on this website are prepared in accordance with UK legislation which may differ from legislation in other jurisdictions.
To the best of each Director’s knowledge:
a the financial statements, prepared in accordance with the applicable set of accounting standards and contained within this Annual
Report and Accounts, give a true and fair view of the assets, liabilities, financial position and profit or loss of the group and the
undertakings included in the consolidation taken as a whole;
a the Strategic report includes a fair review of the development and performance of the business and the position of the Company
and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and
uncertainties that they face; and
a the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company’s performance, business model and strategy.
By order of the Board
Chief Executive
18 May 2015
Suzanne Baxter
18 May 2015
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85
Independent auditor’s report to the members of Mitie Group plc
For the year ended 31 March 2015
Opinion on financial
statements of
Mitie Group plc
In our opinion:
a the financial statements give a true and fair view of the state of the group’s and of the parent company’s
affairs as at 31 March 2015 and of the group’s profit for the year then ended;
a the group financial statements have been properly prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union;
a the parent company financial statements have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
a the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.
The financial statements comprise the Consolidated Income Statement, the Consolidated Statement
of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes
in Equity, the Consolidated Statement of Cash Flows, the Company Balance Sheet and the related
notes 1 to 51. The financial reporting framework that has been applied in the preparation of the group
financial statements is applicable law and IFRSs as adopted by the European Union. The financial
reporting framework that has been applied in the preparation of the parent company financial statements
is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted
Accounting Practice).
Going concern
As required by the Listing Rules we have reviewed the directors’ statement contained within the Directors’
Report that the group is a going concern. We confirm that:
a we have concluded that the directors’ use of the going concern basis of accounting in the preparation
of the financial statements is appropriate; and
a we have not identified any material uncertainties that may cast significant doubt on the group’s ability
to continue as a going concern.
However, because not all future events or conditions can be predicted, this statement is not a guarantee
as to the group’s ability to continue as a going concern.
Our assessment of risks
of material misstatement
The assessed risks of material misstatement described below are those that had the greatest effect on
our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team:
Risk
How the scope of our audit responded to the risk
Revenue recognition and accounting for complex contracts
There are significant accounting judgements required to apply
the group’s revenue recognition policies to the long-term complex
contracts entered into by the group for the provision of projectbased services, predominantly integrated facilities management
contracts. In particular this relates to determining the stage of
completion of the contract activity, forecasting whole-life contract
costs and assessing the separability of services provided under the
contract in accordance with IAS 18.
The group’s policy on revenue recognition is set out in Note 1 to the
group financial statements and revenue is analysed in Note 3.
The matter is also disclosed as a critical Judgement in Note 2.
We have evaluated management’s application of their accounting
policy, with particular focus on the long-term facilities management
contracts, the largest contracts and new contracts that were
significant either due to size or specific characteristics.
We have assessed the design and implementation of the key
controls, including monthly contract reviews; the automated
IT controls over the systems used to generate the information
and Management’s review and approval of the contract
accounting applied.
We have ‘performed substantive tests and analytical procedures on
costs incurred to date and forecast performance, including agreeing
significant contract terms, analysing margin trends and obtaining
signed variation orders.
In certain instances, we have independently contacted customers
to confirm the nature of the services and the terms of the contracts
and evaluated the separability of the contract services.
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Risk
Recoverability of trade receivables
The group has exposures on its balance sheet in relation to
the recoverability of contract mobilisation costs capitalised of
£30.6m and contract receivables, including accrued income of
£192.6m. Judgement is required to assess the recoverability of
contract assets and to evaluate whether provisions or allowances
are required.
The risk arises where amounts are in dispute with customers as
a result of contract performance disputes or where payment is
significantly overdue.
The group’s policy on financial assets is set out in Note 1 and a
breakdown and analysis of the balances is provided in Note 18 to the
group financial statements.
Goodwill and intangible assets
In accordance with IFRS and the Group’s accounting policy,
management is required to carry out an annual impairment
test of the Group’s goodwill of £464.4m and intangible assets of
£76.6m, which incorporates judgements based on assumptions
about future profitability, revenue growth, margins and forecast
cash flows, and the selection of appropriate discount rates for the
related businesses.
The Group’s policy on impairment of goodwill is disclosed in note
1 and note 2. Further details in respect of the carrying value of
goodwill and intangible assets, and the recoverability of individual
cash-generating units and sensitivities of the key assumptions are
outlined in note 13.
Governance
Financial
How the scope of our audit responded to the risk
We have challenged the judgements made with respect to the
recoverability of certain specific contract receivables by reading
underlying contracts and legal correspondence where appropriate.
We have assessed the reasonableness of financial and operational
forecasts and challenged the assumptions adopted by Management
to support the recoverability of contract assets.
We have assessed the design and implementation of the key
controls, including monthly contract reviews; monthly reviews of
aged debtors and billing reports; and the automated IT controls
over the systems used to generate the information.
We performed cash after date testing over the contract debtor
population to assess recoverability of existing contract receivables.
Our work focussed on challenging Management’s assumptions
including specifically the determination of cash-generating units
(‘CGU’), the forecast cashflows for each CGU and the discount rates,
particularly with respect to the Healthcare CGU.
In making this critical assessment of the cash flow projections we
considered the output of the Group’s budgeting process, historical
forecasting accuracy and compared forecast profit margins to
historical margins and benchmarked the discount and growth rates
employed to available market data.
We challenged the appropriateness of the inclusion of cashflows
relating to new initiatives. With respect to Healthcare, we critically
assessed management’s position as to whether or not a reasonably
possible change to key operating assumptions could result in an
impairment. In doing so, we have considered the sensitivity of the
key assumptions relating to future growth in revenue, costs savings
to be achieved and the discount rate applied.
We also specifically reviewed the appropriateness of the disclosures
set out in note 13 to the accounts detailing the point at which the
recoverable value of goodwill would equal the carrying amount.
Presentation of “other items” on the consolidated
income statement
The group records certain transactions that fall outside the normal
course of trading as “other items” on the consolidated income
statement. In light of the material value of the items disclosed, we
have identified their appropriate presentation as a significant risk.
There is no specific definition in respect of the classification and
disclosure of such items within IFRS as adopted by the European
Union, although IAS 1 does require disclosure of significant items,
and therefore judgement is required by the Directors to identify such
transactions as “other items” and to maintain the comparability
of results with previous years and in accordance with the Group’s
accounting policy. Failure to disclose clearly the nature and impact
of “other items” may distort the reader’s view of the financial result
in the year.
The Group’s policy on disclosure of “other items” is outlined in note 1.
Further details of “other items” is given in note 5
We have reviewed the transactions disclosed with other items and
obtained documentation to understand their nature and evaluate
whether their inclusion within “other items” is in line with the Group’s
accounting policy.
We have challenged management over the fair presentation of
the balances and considered whether any further transactions
meet the requirements for classification as “other items” by
reference to minutes of board meetings held and a review of
external announcements.
In critically evaluating the appropriate presentation of “other items”,
we have taken into consideration the guidance provided by the FRC.
We have read the Group’s accounting policy for “other items”
and considered the adequacy of the disclosures with respect
to “other items”.
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Independent auditor’s report to the members of Mitie Group plc
The description of risks above should be read in conjunction with the significant issues considered by the
Audit Committee discussed on pages 49 and 50.
Our audit procedures relating to these matters were designed in the context of our audit of the financial
statements as a whole, and not to express an opinion on individual accounts or disclosures. Our opinion
on the financial statements is not modified with respect to any of the risks described above, and we do not
express an opinion on these individual matters.
Our application
of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable
that the economic decisions of a reasonably knowledgeable person would be changed or influenced.
We use materiality both in planning the scope of our audit work and in evaluating the results of our work.
We determined planning materiality for the group to be £5.0 million (2014: £6.0 million) , which is based on
4.4% (2014: 5.3%) of headline profit before tax and which equates to 0.2% (2014: 0.3%) of revenue, 12.0%
(2014: 8.8%) of profit before tax and 1.3% (2014: 1.5%) of equity.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess
of £100,000 (2014: £150,000), as well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the financial statements.
An overview of the scope
of our audit
Our group audit was scoped by obtaining an understanding of the group and its environment, including
group-wide controls, and assessing the risks of material misstatement at the group level. Based on that
assessment, our group audit scope focused primarily on the audit work at the five divisions and at head
office. All of these were subject to a full audit, led by the Senior Statutory Auditor. These five divisions
represent the principal business units within the group’s four reportable segments and, together with head
office, account for 100% (2014: 100%) of the group’s net assets, 98.2% (2014: 98.4%) of the group’s revenue
and 100% (2014: 100%) of the group’s profit before tax. Our audit work was executed at levels of materiality
applicable to each individual entity which was lower than group materiality and ranged from £0.0m to
£3.5m (2014: £0.0m to £3.4m)
Opinion on other matters
prescribed by the
Companies Act 2006
In our opinion:
a the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance
with the Companies Act 2006; and
a the information given in the Strategic Report and the Directors’ Report for the financial year for which
the financial statements are prepared is consistent with the financial statements.
Matters on which
we are required to
report by exception
Adequacy of explanations
received and
accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
a we have not received all the information and explanations we require for our audit; or
a adequate accounting records have not been kept by the parent company, or returns adequate for
our audit have not been received from branches not visited by us; or
a the parent company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of
directors’ remuneration have not been made or the part of the Directors’ Remuneration Report to be
audited is not in agreement with the accounting records and returns. We have nothing to report arising
from these matters.
Corporate
Governance Statement
Under the Listing Rules we are also required to review the part of the Corporate Governance Statement
relating to the company’s compliance with ten provisions of the UK Corporate Governance Code.
We have nothing to report arising from our review.
88
Mitie Group plc
Strategic Report
Our duty to read other
information in the
Annual Report
Governance
Financial
Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our
opinion, information in the annual report is:
a materially inconsistent with the information in the audited financial statements; or
a apparently materially incorrect based on, or materially inconsistent with, our knowledge of the group
acquired in the course of performing our audit; or
a otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our
knowledge acquired during the audit and the directors’ statement that they consider the annual report is
fair, balanced and understandable and whether the annual report appropriately discloses those matters
that we communicated to the audit committee which we consider should have been disclosed. We confirm
that we have not identified any such inconsistencies or misleading statements.
Respective responsibilities
of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for
the preparation of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with
applicable law and International Standards on Auditing (UK and Ireland). Those standards require us
to comply with the Auditing Practices Board’s Ethical Standards for Auditors. We also comply with
International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to
ensure that our quality control procedures are effective, understood and applied. Our quality controls and
systems include our dedicated professional standards review team and independent partner reviews.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16
of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
company and the company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.
Scope of the audit of the
An audit involves obtaining evidence about the amounts and disclosures in the financial statements
sufficient to give reasonable assurance that the financial statements are free from material misstatement,
whether caused by fraud or error. This includes an assessment of: whether the accounting policies are
appropriate to the group’s and the parent company’s circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant accounting estimates made by the directors;
and the overall presentation of the financial statements. In addition, we read all the financial and nonfinancial information in the annual report to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware
of any apparent material misstatements or inconsistencies we consider the implications for our report.
Colin Hudson FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London
18 May 2015
Mitie Group plc
89
Consolidated income statement
2015
Notes
Headline
£m
Other
Items1
£m
Total
£m
2014
Headline
£m
Other
Items1
£m
Total
£m
Continuing operations
Revenue
3,4
Cost of sales
Gross profit
7.6
2,273.8
2,142.6
78.5
2,221.1
(17.4)
(1,945.7)
(1,819.3)
(76.5)
(1,895.8)
(9.8)
328.1
323.3
2.0
325.3
(62.8)
(272.8)
(196.3)
(46.9)
(243.2)
337.9
Administrative expenses
Share of profit of joint ventures
and associates
2,266.2
(1,928.3)
(210.0)
16
0.7
–
0.7
0.5
–
0.5
4,6
128.6
(72.6)
56.0
127.5
(44.9)
82.6
Investment revenue
8
0.3
–
0.3
1.2
–
1.2
Finance costs
9
Operating profit
(14.8)
–
(14.8)
(15.4)
–
(15.4)
Net finance costs
(14.5)
–
(14.5)
(14.2)
–
(14.2)
Profit before tax
114.1
41.5
113.3
(44.9)
68.4
Tax
10
Profit for the year
(72.6)
(24.1)
18.3
(5.8)
(25.6)
5.7
(19.9)
90.0
(54.3)
35.7
87.7
(39.2)
48.5
89.3
(54.3)
35.0
87.5
(39.2)
48.3
Attributable to:
Equity holders of the parent
Non-controlling interests
0.7
–
0.7
0.2
–
0.2
90.0
(54.3)
35.7
87.7
(39.2)
48.5
Earnings per share (EPS)
– basic
12
24.8p
(15.1)p
9.7p
24.3p
(10.9)p
13.4p
– diluted
12
24.2p
(14.7)p
9.5p
23.6p
(10.6)p
13.0p
Notes:
1 Other items are as described in Note 5.
90
Mitie Group plc
Strategic Report
Governance
Financial
Consolidated statement of comprehensive income
Notes
Profit for the year
2015
£m
2014
£m
35.7
48.5
Items that will not be reclassified subsequently to profit or loss
Remeasurement of net defined benefit pension liability
Income tax relating to items not reclassified
36
(15.0)
2.4
3.0
(1.0)
(12.0)
1.4
(2.0)
(0.6)
1.1
0.2
Gains/(losses) arising during the year
13.4
(10.1)
Reclassification adjustment for (losses)/gains included in profit and loss
(14.6)
12.1
0.2
(0.8)
(1.9)
0.8
Other comprehensive (expense)/income for the financial year
(13.9)
2.2
Total comprehensive income for the financial year
21.8
50.7
Equity holders of the parent
21.1
50.5
0.7
0.2
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Gains on hedge of a net investment taken to equity
Cash flow hedges:
Income tax credit/(charge) relating to items that may be reclassified
Attributable to:
Mitie Group plc
91
At 31 March 2015
Notes
2015
£m
2014
£m
Goodwill
13
464.4
459.6
Other intangible assets
14
76.6
79.3
Property, plant and equipment
15
53.3
56.7
Interest in joint ventures and associates
16
1.1
0.9
Financing assets
17
8.0
20.4
Trade and other receivables
18
58.5
41.2
Deferred tax assets
21
Non-current assets
Total non-current assets
13.4
8.4
675.3
666.5
Current assets
Inventories
22
11.0
7.4
18
421.4
491.6
Cash and cash equivalents
23
96.4
89.1
528.8
588.1
1,204.1
1,254.6
Total current assets
Total assets
Current liabilities
Trade and other payables
24
Current tax liabilities
(476.0)
(525.6)
(5.2)
(11.0)
25
(1.8)
(2.7)
Provisions
27
(4.9)
(1.2)
(487.9)
(540.5)
Total current liabilities
Net current assets
40.9
47.6
Non-current liabilities
24
(8.0)
–
25
(279.2)
(273.0)
Provisions
27
(7.4)
(8.8)
Retirement benefit obligation
36
(35.8)
(19.1)
Deferred tax liabilities
21
(7.5)
(9.3)
Total non-current liabilities
(337.9)
(310.2)
Total liabilities
(825.8)
(850.7)
Net assets
378.3
403.9
92
Mitie Group plc
Strategic Report
Governance
Financial
At 31 March 2015
Notes
2015
£m
2014
£m
Share capital
30
9.4
9.3
Share premium account
31
122.6
118.9
Merger reserve
31
80.1
101.2
Equity
Share-based payments reserve
31
7.2
2.6
Own shares reserve
31
(47.5)
(37.2)
Other reserves
31
0.4
0.4
Hedging and translation reserve
31
Retained earnings
Equity attributable to equity holders of the parent
Total equity
(6.4)
(4.3)
209.2
210.0
375.0
400.9
3.3
3.0
378.3
403.9
The financial statements of the group, company registration number SC019230 were approved by the Board of Directors and
authorised for issue on 18 May 2015. They were signed
on its behalf by:
Chief Executive
Suzanne Baxter
Mitie Group plc
93
Consolidated statement of changes in equity
At 1 April 2013
Share
capital
£m
Share
premium
account
£m
Merger
reserve
£m
Sharebased
payments
reserve
£m
Own
shares
reserve
£m
Other
reserves
£m
Hedging
and
translation
reserve
£m
Retained
earnings
£m
Attributable
to equity
holders of the
parent
£m
Noncontrolling
interests
£m
Total
£m
9.3
108.0
97.6
1.9
(20.3)
0.3
(5.9)
210.6
401.5
3.8
405.3
Profit for the year
–
–
–
–
–
–
–
48.3
48.3
0.2
48.5
Other
comprehensive
income
–
–
–
–
–
–
1.6
0.6
2.2
–
2.2
Total
comprehensive
income
–
–
–
–
–
–
1.6
48.9
50.5
0.2
50.7
Shares issued
0.1
10.9
3.6
–
–
–
–
–
14.6
–
14.6
Dividends paid
–
–
–
–
–
–
–
(38.1)
(38.1)
(0.1)
(38.2)
Purchase of
own shares
–
–
–
–
(19.8)
–
–
–
(19.8)
–
(19.8)
Share-based
payments
–
–
–
0.7
2.9
–
–
1.1
4.7
–
4.7
Tax on sharebased payment
transactions
–
–
–
–
–
–
–
1.0
1.0
–
1.0
Share buybacks
(0.1)
–
–
–
–
0.1
–
(7.4)
(7.4)
–
(7.4)
–
–
–
–
–
–
–
(6.1)
(6.1)
(0.9)
(7.0)
9.3
118.9
101.2
2.6
(37.2)
0.4
(4.3)
210.0
400.9
3.0
403.9
–
35.0
35.0
0.7
35.7
–
(2.1)
(11.8)
(13.9)
–
(13.9)
Acquisitions and
other movements
in non-controlling
interests
At 31 March
2014
Profit for the year
Other
comprehensive
expense
Total
comprehensive
income
–
–
–
–
–
–
–
–
–
–
–
(2.1)
23.2
21.1
0.7
21.8
Shares issued
0.1
3.7
–
–
–
–
–
–
3.8
–
3.8
Dividends paid
–
–
–
–
–
–
–
(40.5)
(40.5)
(0.1)
(40.6)
Purchase of
own shares
–
–
–
–
(10.7)
–
–
–
(10.7)
–
(10.7)
Share-based
payments
–
–
–
4.6
0.4
–
–
1.4
6.4
–
6.4
Tax on sharebased payment
transactions
–
–
–
–
–
–
–
(0.1)
(0.1)
–
(0.1)
Transfer between
reserves
–
–
(21.1)
–
–
–
–
21.1
–
–
–
Acquisitions and
other movements
in non-controlling
interests
–
–
–
–
–
–
–
(5.9)
(5.9)
(0.3)
(6.2)
9.4
122.6
80.1
7.2
(47.5)
0.4
(6.4)
209.2
375.0
3.3
At 31 March
2015
94
Mitie Group plc
378.3
Strategic Report
Governance
Financial
Consolidated statement of cash flows
Notes
Operating profit
2015
£m
2014
£m
56.0
82.6
Adjustments for:
Share-based payment expense
35
6.5
5.0
Defined benefit pension charge/(credit)
36
4.0
(6.1)
Defined benefit pension contributions
36
(3.1)
(3.6)
5
0.3
0.7
Depreciation of property, plant and equipment
15
19.7
16.1
Amortisation of intangible assets
14
13.8
17.0
19.0
–
Acquisition costs
Other non-cash movement in Other items
Share of profit of joint ventures and associates
16
Loss/(gain) on disposal of property, plant and equipment
Operating cash flows before movements in working capital
Increase in inventories
(0.7)
(0.5)
0.3
(0.7)
115.8
110.5
(3.8)
(0.8)
53.4
(2.4)
(50.9)
16.8
(1.3)
–
113.2
124.1
Income taxes paid
(15.5)
(18.2)
Interest paid
(13.1)
(14.3)
Facility extension fees
(2.0)
–
(0.3)
(0.7)
82.3
90.9
–
1.2
Decrease/(increase) in receivables
(Decrease)/increase in payables
Decrease in provisions
Cash generated by operations
Acquisition costs
38
5
Net cash from operating activities
Investing activities
Interest received
Purchase of property, plant and equipment
Purchase of subsidiary undertakings, net of cash acquired
(20.6)
(0.5)
(10.7)
Dividends received from joint ventures and associates
0.5
–
Investment in financing assets
(0.3)
0.8
Purchase of other intangible assets
32
(23.0)
(3.9)
(6.2)
Disposals of property, plant and equipment
14
1.8
6.0
Net cash outflow from investing activities
(25.4)
(29.5)
Mitie Group plc
95
Consolidated statement of cash flows
2015
£m
2014
£m
Repayments of obligations under finance leases
(2.0)
(3.6)
Proceeds on issue of share capital
3.8
8.9
Bank loans repaid
0.6
(2.8)
Notes
Financing activities
Purchase of own shares
31
(10.7)
(19.8)
Share buybacks
30
–
(7.4)
Equity dividends paid
11
Non-controlling interests dividends paid
Net cash outflow from financing
Net increase/(decrease) in cash and cash equivalents
Net cash and cash equivalents at beginning of the year
Effect of foreign exchange rate changes
Net cash and cash equivalents at end of the year
(40.5)
(38.1)
(0.1)
(0.1)
(48.9)
(62.9)
8.0
(1.5)
89.1
90.8
(0.7)
(0.2)
96.4
89.1
96.4
89.1
96.4
89.1
2015
£m
2014
£m
Net cash and cash equivalents comprise:
Cash at bank
Reconciliation of net cash flow to movements in net debt
Notes
Net increase/(decrease) in cash and cash equivalents
8.0
(1.5)
Effect of foreign exchange rate changes
(0.7)
(0.2)
Decrease in bank loans
1.4
3.5
Non-cash movement in private placement notes and associated hedges
(1.3)
2.2
Decrease in finance leases
Decrease in net debt during the year
Opening net debt
Closing net debt
96
Mitie Group plc
29
1.4
1.6
8.8
5.6
(186.6)
(192.2)
(177.8)
(186.6)
Strategic Report
Governance
Financial
Notes to the consolidated financial statements
1
Basis of preparation and significant accounting policies
Basis of preparation
The group’s financial statements for the year ended 31 March 2015 have been prepared in accordance with International Financial
Reporting Standards (IFRSs) adopted for use in the European Union and therefore the group financial statements comply with Article
4 of the EU IAS Regulation.
As more fully detailed in the Directors’ report, the group’s financial statements have been prepared on a going concern basis.
The group’s financial statements have been prepared on the historical cost basis, except for certain financial instruments which are
required to be measured at fair value.
The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those followed in
the preparation of the group’s annual financial statements for the year ended 31 March 2014 except for the adoption of IFRS 10
‘Consolidated Financial Statements’, IFRS 11 ‘Joint Arrangements’, IFRS 12 ‘Disclosures of Interests in Other Entities’, IAS 27 (Revised)
‘Separate Financial Statements’ and IAS 28 (Revised) ‘Investments in Associates and Joint Ventures’. These standards clarify aspects
of the basis for consolidation. The adoption of these standards has had no impact on the results or financial position of the group.
The following amendments were also effective for the first time in the current period but had no impact on the results or financial
position of the group:
a Amendments to IAS 32 ‘Financial Instruments: Presentation’ – offsetting financial assets and financial liabilities;
a Amendments to IAS 39: Novation of Derivatives and Continuation of Hedge Accounting;
a Amendments to IAS 36: Recoverable Amount Disclosures for Non-Financial Assets; and
a IFRIC Interpretation 21 ‘Levies’.
The following standards and interpretations have been issued but are not yet mandatorily effective (and in some cases have
not yet been adopted by the EU):
a IFRS 9 ‘Financial Instruments’;
a Amendments to IAS 19 ‘Employee Benefits’ – Employee Contributions;
a Amendments to IFRS 11 ‘Joint Arrangements’ – Accounting for Acquisitions of Interests in Joint Operations;
a Amendments to IAS 16 ‘Property, Plant and Equipment’ and IAS 38 ‘Intangible Assets’ – Clarification of Acceptable Methods
of Depreciation and Amortisation;
a IFRS 15 ‘Revenue from Contracts with Customers’
a Amendments to IAS 27 ‘Separate Financial Statements’ – Equity Method in Separate Financial Statements
a Amendments to IFRS 10 ‘Consolidated Financial Statements’ and IAS 28 ‘Investments in Associates and Joint Ventures’–
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
a Amendments to IFRS 10 ‘Consolidated Financial Statements’, IFRS 12 ‘Disclosures of Interests in Other Entities’ and IAS 28
‘Investments in Associates and Joint Ventures’ – Investment Entities: Applying the Consolidation Exception;
a Amendments to IAS 1 ‘Presentation of Financial Statements’ – Disclosure Initiative; and
a Amendments resulting from Annual Improvements to IFRSs 2010-2012 Cycle, 2011-2013 Cycle and 2012-2014 Cycle.
The group are conducting a review of IFRS 15 ‘Revenue from Contracts with Customers’ which is currently due to be effective for
periods beginning on or after 1 January 2017, although this is subject to a proposal, by the International Accounting Standards Board,
to defer the effective date by one year. The Directors do not anticipate that the adoption of other standards and interpretations that
have been issued but are not yet effective (and in some cases have not yet been adopted by the EU) will have a material financial
impact on the group’s financial statements in the period of initial application.
Significant accounting policies under IFRS
The significant accounting policies adopted in the preparation of the group’s IFRS financial information are set out below.
Basis of consolidation
The consolidated financial statements comprise the financial statements of Mitie Group plc and all its subsidiaries. The financial
statements of the parent company and subsidiaries are prepared in accordance with UK Generally Accepted Accounting Practice
(UK GAAP) with the exception of a small number of entities. Adjustments are made in the consolidated accounts to bring into line
any dissimilar accounting policies that may exist between UK GAAP and IFRS.
All inter-company balances and transactions, including unrealised profits arising from inter-group transactions, have been eliminated
in full.
Mitie Group plc
97
1
Subsidiaries are consolidated from the date on which control is transferred to the group and cease to be consolidated from the date
on which control is transferred out of the group. The results, assets and liabilities of joint ventures and associates are accounted for
under the equity method of accounting. Where necessary, adjustments are made to the financial statements of subsidiaries, joint
ventures and associates to bring the accounting policies used into line with those used by the group.
Interests of non-controlling interest shareholders are measured at the non-controlling interest’s proportion of the net fair value of
the assets and liabilities recognised. Changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control
are accounted for within shareholders’ equity. No gain or loss is recognised on such transactions and goodwill is not re-measured.
Any difference between the change in the non-controlling interest and the fair value of the consideration paid or received is
recognised directly in equity and attributed to the owners of the parent.
Operating profit before other items
The group’s chosen supplementary measure of performance is operating profit before other items. The Directors believe that
operating profit before other items provides a meaningful indication of the long-term operating performance of the group. To align
the measure of the group’s performance with the long-term nature of the business, operating profit before other items excludes
items which create short-term volatility. The measure excludes restructuring and acquisition costs, amortisation of acquired
intangible assets and items that are one-off in nature and which, due to their size or nature, are not indicative of the long-term
operating performance of the group.
Foreign currency
The financial statements of each of the group’s businesses are prepared in the functional currency applicable to that business.
Transactions in currencies other than the functional currency are recorded at the rate of exchange at the date of transaction.
Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange
prevailing at that date.
Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date
when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are
not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit
or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included
in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains
and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also
recognised directly in equity.
On consolidation, the assets and liabilities of the group’s overseas operations, including goodwill and fair value adjustments arising
on their acquisition, are translated into sterling at exchange rates prevailing at the balance sheet date. Income and expenses are
translated into sterling at average exchange rates for the period. Exchange differences arising are recognised directly in equity in the
group’s hedging and translation reserve. On disposal of a foreign operation, the deferred cumulative amount recognised in equity
relating to that particular foreign operation shall be recognised in the income statement.
Revenue
Revenue represents income recognised in respect of services provided during the period (stated net of sales taxes) and is earned
predominantly within the United Kingdom. Revenue is recognised to the extent that it is probable that the economic benefits will
flow to the group and the revenue can be reliably measured. When revenue is recognised but has not yet been billed accrued income
arises. Deferred income arises when the group has billed clients in advance of recognising revenue.
All bid costs are expensed through the income statement up to the point where contract award or full recovery of the costs is virtually
certain. The confirmation of the preferred bidder for a contract by a client is the point at which the award of a contract is considered
to be virtually certain.
Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract at the balance
sheet date. Revenue from time and material contracts is recognised at the contractual rates as labour hours and tasks are delivered
and direct expenses incurred. In other cases, the group distinguishes between the following types of contract:
Revenue recognition: repeat service-based contracts (single and bundled contracts)
Revenue is recognised on a straight-line basis unless this is not an accurate reflection of the work performed. Where a straight-line
basis is not appropriate, for example if specific works on contracts represent a significant element of the whole, revenue is recognised
based on the percentage of completion method, based on the proportion of costs incurred at the balance sheet date relative to the
total estimated cost of completing the contracted work.
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Governance
Financial
Costs incurred after confirmation of preferred bidder, but before the commencement of services under the contract, are defined as
mobilisation costs. These costs are capitalised and included within trade and other receivables on the balance sheet provided that
the costs relate directly to the contract, are separately identifiable, can be measured reliably and that the future net cash inflows
from the contract are estimated to be no less than the amounts capitalised. The capitalised mobilisation costs are amortised over
the life of the contract, generally on a straight-line basis, or on a basis to reflect the profile of work to be performed over the life of the
contract if the straight-line basis is not considered to be appropriate for the specific contract to which the costs relate. If the contract
becomes loss making, any unamortised costs are written off immediately.
Revenue recognition: long-term complex contracts
The group has a number of long-term contracts for the provision of complex project-based services, predominantly integrated
facilities management contracts. Where the outcome of such complex project-based contracts can be measured reliably, revenue
and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date. This is
measured by the proportion of contract costs incurred for work performed to date compared to the total estimated contract costs.
Contract costs used to determine the stage of completion are recognised as expenses in the period in which they are incurred and
include transition costs which are costs incurred in the performance of transitioning services provided after confirmation of preferred
bidder and before commencement of full service delivery. Where the outcome of a complex project-based contract cannot be
estimated reliably, contract revenue is recognised to the extent that it is probable that contract costs will be recovered. Full provision
is made for all known or anticipated losses on each contract immediately such losses are forecast.
Revenue recognition: other
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable,
which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s
net carrying amount.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until
such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit or
loss in the period in which they are incurred.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes
items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted
or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using
the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred
tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary
differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the
initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised,
based upon tax rates and legislation that have been enacted or substantively enacted at the balance sheet date. Deferred tax is
charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case
the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when: there is a legally enforceable right to set off current tax assets against current
tax liabilities; when they relate to income taxes levied by the same taxation authority; and the group intends to settle its current tax
assets and liabilities on a net basis.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the group’s interest in the fair value of the
identifiable assets and liabilities of a subsidiary at the date of acquisition.
Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less accumulated impairment
losses. It is reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and is not
subsequently reversed.
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1
For the purpose of impairment testing, goodwill is allocated to each of the group’s cash-generating units (‘CGUs’) expected to benefit
from the synergies of the combination. CGUs to which goodwill has been allocated are tested for impairment annually, or more
frequently when there is an indication that the unit may be impaired. If the recoverable amount of the CGU is less than the carrying
amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then
to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised
for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject
to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated
and is not included in determining any subsequent profit or loss on disposal.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is
charged so as to write off the cost less expected residual value of the assets over their estimated useful lives and is calculated
on a straight-line basis as follows:
Freehold buildings and long leasehold property
– 50 years
Leasehold improvements
– period of the lease
Plant and vehicles
– 3–10 years
Annually the group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those
assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other
assets, the group estimates the recoverable amount of the CGU to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset
(or CGU) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate
of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset (or CGU) in prior years. A reversal of an impairment loss is
recognised as income immediately.
Intangible assets
Intangible assets identified in a business acquisition are capitalised at fair value as at the date of acquisition.
Software and development expenditure is capitalised as an intangible asset if the asset created can be identified, if it is probable
that the asset created will generate future economic benefits and if the development cost of the asset can be measured reliably.
Following initial recognition, the carrying amount of an intangible asset is its cost less any accumulated amortisation and any
accumulated impairment losses. Intangible assets are reviewed for impairment annually, or more frequently when there is an
indication that they may be impaired. Amortisation expense is charged to administrative expenses in the income statement on
a straight-line basis over its useful life.
Joint ventures and associates
The group has an interest in joint ventures which are entities in which the group has joint control. The group also has an interest
in associates which are entities in which the group has significant influence.
The group accounts for its interest in joint ventures and associates using the equity method. Under the equity method the group’s
share of the post-tax result of joint ventures and associates is reported as a single line item in the consolidated income statement.
The group’s interest in joint ventures and associates is carried in the consolidated balance sheet at cost plus post-acquisition changes
in the group’s share of net assets.
Inventories
Inventories are stated at the lower of cost and net realisable value.
Costs represent materials, direct labour and overheads incurred in bringing the inventories to their present condition and location.
Net realisable value is based on estimated selling price less further costs expected to be incurred to completion and estimated selling
costs. Provision is made for obsolete, slow moving or defective items where appropriate.
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Governance
Financial
Financial instruments
Financial assets and financial liabilities are recognised on the group’s balance sheet when the group becomes a party to the
contractual provisions of the instrument. The group derecognises financial assets and liabilities only when the contractual rights
and obligations are transferred, discharged or expire.
Assets that are assessed not to be individually impaired are subsequently assessed for impairment on a collective basis.
Objective evidence of impairment for a portfolio of receivables includes the group’s past experience of collecting payments, the
number of delayed payments in the portfolio past the average credit period as well as observable changes in national or local
economic conditions that correlate with default on receivables.
The carrying amount of the financial asset is reduced by the impairment loss directly with the exception of trade receivables where
the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectable, it
is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the
allowance account. Changes in the carrying amount of the allowance account are recognised in the income statement.
Financial assets comprise loans and receivables and are measured at initial recognition at fair value and subsequently at amortised
cost. Appropriate allowances for estimated irrecoverable amounts are recognised where there is objective evidence that the asset
is impaired. Cash and cash equivalents comprise cash in hand, demand deposits and other short-term highly liquid investments that
are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities comprise trade payables, financing liabilities, including bank and other borrowings, put options on non-controlling
interests and deferred contingent consideration. These are measured at initial recognition at fair value and subsequently at
amortised cost with the exception of derivative financial instruments which are measured at fair value, and deferred contingent
consideration which is measured at the Directors’ best estimate of the likely future obligation. Bank and other borrowings are stated
at the amount of the net proceeds after deduction of transaction costs. Finance charges, including premiums payable on settlement
or redemption and direct issue costs, are accounted for on an accruals basis in the income statement.
Put options on the shares of subsidiaries held by non-controlling interest shareholders that oblige the group to purchase those
shares for cash are recognised as a financial liability at their present value of the option exercise price. The initial financial liability
and subsequent changes in its carrying value are recognised in equity.
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Derivative financial instruments and hedge accounting
The group uses derivative financial instruments including cross currency interest rate swaps and forward foreign exchange
contracts to manage the group’s exposure to financial risks associated with interest rates and foreign exchange. Derivative financial
instruments are initially recognised at fair value at the date the derivative contract is entered into and are subsequently remeasured
to their fair value, determined by reference to market rates, at each balance sheet date and included as financial assets or liabilities
as appropriate. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective
as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
The group may designate certain hedging instruments including derivatives as either fair value hedges, cash flow hedges, or hedges
of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow
hedges. At the inception of the hedge relationship, the group documents the relationship between the hedging instrument and the
hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore,
at the inception of the hedge and on an ongoing basis, the group documents whether the hedging instrument that is used in a
hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item.
Fair value hedges
Hedges are classified as fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss immediately,
together with any changes in the fair value of the hedged item that are attributable to the hedged risk. The change in the fair value
of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in the line of the income
statement relating to the hedged item. Hedge accounting is discontinued when the group revokes the hedging relationship, the
hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. The fair value adjustment
to the carrying amount of the hedged item arising from the hedged risk is amortised to profit or loss from that date.
Cash flow hedges
Hedges are classified as cash flow hedges when they hedge the exposure to changes in cash flows that are attributable to a
particular risk associated with either a recognised asset or liability or a forecast transaction. The effective portion of changes in
the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income
and accumulated in equity within the group’s translation and hedging reserve. The gain or loss relating to any ineffective portion
is recognised immediately in profit or loss.
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101
1
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the
periods when the hedged item is recognised in profit or loss, in the same line of the income statement as the recognised hedged item.
However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability,
the gains and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost
of the non-financial asset or non-financial liability. Hedge accounting is discontinued when the group revokes the hedging relationship,
the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. Any gain or loss
recognised in other comprehensive income at that time is accumulated in equity and is recognised when the forecast transaction is
ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in
equity is recognised immediately in profit or loss.
Hedges of net investments in foreign operations
Hedges are classified as net investment hedges when they hedge the foreign currency exposure to changes in the group’s share
in the net assets of a foreign operation. Hedges of net investments in foreign operations are accounted for similarly to cash
flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other
comprehensive income and accumulated in the group’s translation and hedging reserve. The gain or loss relating to any ineffective
portion is recognised immediately in profit or loss. Gains or losses on the hedging instrument relating to the effective portion of
the hedge accumulated in equity are reclassified to profit or loss in the same way as exchange differences relating to the foreign
operation as described above.
Leasing
Finance leases, which transfer to the group substantially all the risks and benefits incidental to ownership of the leased item, are
capitalised at the inception of the lease at the fair value of the leased item or, if lower, at the present value of the minimum lease
payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income.
Capitalised leased assets are depreciated over the shorter of the estimated life of the asset or the lease term.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases.
Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.
Any lease incentives are amortised on a straight-line basis over the non-cancellable period for which the group has contracted to
lease the asset, together with any further terms for which the group has the option to continue to lease the asset if, at the inception
of the lease, it is judged to be reasonably certain that the group will exercise the option.
Provisions
Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event and it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be
made of the amount of the obligation. Where the group expects some or all of a provision to be reimbursed, for example under
an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.
The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value
of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used,
the increase in the provision due to the passage of time is recognised as a borrowing cost.
Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by
the group in exchange for control of the acquiree. Acquisition costs incurred are expensed. The acquiree’s identifiable assets, liabilities
and contingent liabilities that meet the conditions for recognition are recognised at their fair value at the acquisition date, except for
non-current assets (or disposal groups) that are classified as held for resale in accordance with IFRS 5 ‘Non-Current Assets Held for
Sale and Discontinued Operations’, which are recognised and measured at fair value less costs to sell.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business
combination over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If,
after reassessment, the group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities
exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.
Where applicable, the consideration for an acquisition includes any assets or liabilities resulting from a contingent consideration
arrangement, measured at fair value at the acquisition date. Subsequent changes in such fair values are adjusted against the
cost of acquisition where they result from additional information, obtained within one year from the acquisition date, about facts
and circumstances that existed at the acquisition date. All other subsequent changes in the fair value of contingent consideration
classified as an asset or liability are recognised in accordance with IAS 39, either in profit or loss or as a change to other
comprehensive income. Changes in the fair value of contingent consideration classified as equity are not recognised.
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Governance
Financial
Any business combinations prior to 1 April 2010 were accounted for using the standards in place prior to the adoption of IFRS 3
(revised 2008) which differ in the following respects: transaction costs directly attributable to the acquisition formed part of the
acquisition costs; contingent consideration was recognised if, and only if, the group had a present obligation, the economic outflow
was more likely than not and a reliable estimate was determinable; and subsequent adjustments to the contingent consideration
were recognised as part of goodwill.
Share-based payments
The group operates a number of executive and employee share option schemes. Equity-settled share-based payments to
employees are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of nonmarket based vesting conditions. For all grants of share options and awards, the fair value as at the date of grant is calculated using
the Black-Scholes or Monte Carlo models and the corresponding expense is recognised on a straight-line basis over the vesting
period based on the group’s estimate of shares that will eventually vest. At each balance sheet date, the group revises its estimate
of the number of equity instruments expected to vest as a result of the effect of non-market based vesting conditions. Save As You
Earn (SAYE) options are treated as cancelled when employees cease to contribute to the scheme, resulting in an acceleration of the
remainder of the related expense.
Retirement benefit costs
The group operates and participates in a number of defined benefit schemes. In respect of the schemes in which the group
participates, the group accounts for its legal and constructive obligations over the period of its participation which is for a fixed
period only.
In addition, the group operates a number of defined contribution retirement benefit schemes for all qualifying employees.
Payments to the defined contribution and stakeholder pension schemes are charged as an expense as they fall due.
For the defined benefit pension schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with
actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses, the return on plan assets (excluding
interest) and the effect of the asset ceiling (if applicable) are recognised in full in the period in which they occur. They are recognised
outside profit and loss and presented in the statement of comprehensive income.
Current service cost and past service cost are recognised in profit and loss, in administrative expenses, whilst the net interest cost
is recognised in net finance costs.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation,
as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to the present value of available
refunds and reductions in future contributions to the plan.
2
Critical accounting judgements and key sources of estimation uncertainty
Critical judgements in applying the group’s accounting policies
In the process of applying the group’s accounting policies, which are described in Note 1 above, management has made the following
judgements that have the most significant effect on the amounts recognised in the financial statements.
Revenue recognition
Revenue is recognised for certain long-term complex projects based on the stage of completion of the contract activity. This is
measured by comparing the proportion of costs incurred, which include transition costs reflecting costs incurred in the performance
of transitioning services (see Note 1), against the estimated whole-life contract costs. Particular judgement is required in evaluating
the operational and financial business plans for these contracts to forecast the expected whole-life contract billings, costs and
margin and to assess the recoverability of any resulting accrued income through the life of the contract. In forming the judgement
around expected whole-life contract billings, account is taken of potential deductions from and increments to revenue that may arise
from the application of performance related measures under contracts.
Accounting for joint ventures and associates
The group has interests in entities in which it considers that it does not have control and which are accounted for using the equity
method. In the group accounts, consideration is given to the treatment that should be adopted for the results of those entities
in which the group has a participation, taking into account the ownership of the entity and the group’s influence over its control.
Particular consideration was given to the group’s interest in a special purpose company, O-Gen Plymtrek Limited (‘O-Gen’). As a
result of a number of factors, and in particular the combination of not having a majority of directors on the Board and having no
veto rights over substantive matters, the group equity accounts for its interest in O-Gen (see Note 5).
Mitie Group plc
103
2
Critical accounting judgements and key sources of estimation uncertainty
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have
a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are
discussed below.
Measurement and impairment of goodwill and other intangible assets
The measurement of intangible assets other than goodwill on a business combination involves estimation of future cash flows
and the selection of suitable discount rates. Determining whether goodwill and other intangible assets are impaired requires
an estimation of the value in use of the CGUs to which the goodwill has been allocated. The value in use calculation involves an
estimation of the future cash flows of CGUs and also the selection of appropriate discount rates to use in order to calculate present
values. The carrying value of goodwill and other intangible assets is £541.0m (2014: £538.9m) at the balance sheet date; see Notes
13 and 14. A sensitivity analysis has been performed and Management have concluded that no reasonably foreseeable change in
the key assumptions would result in an impairment of the goodwill of any of the Soft FM, Hard FM, Property Management or Energy
Solutions CGUs. Further sensitivity testing was performed for the group’s Healthcare CGU where the financial performance of the
business has deteriorated during the year. On the basis of this review Management have concluded that no impairment to goodwill
is necessary. A sensitivity analysis is included in Note 13.
Measurement of defined benefit pension obligations
The measurement of defined benefit obligations requires judgement. It is dependent on material key assumptions including discount
rates, life expectancy rates, future returns on assets and future contribution rates. The present value of defined benefit obligations
at the balance sheet date is £207.5m (2014: £179.1m); see Note 36.
The sensitivity of defined benefit pension obligations to changes in principal actuarial assumptions is shown below:
Change in
assumption
Increase/
(decrease)
in liability
£m
Discount rate
+0.5%
-0.5%
(20.7)
20.7
Retail price inflation
+0.5%
-0.5%
15.8
(13.8)
Consumer price inflation
+0.5%
-0.5%
4.9
(4.9)
Salary increases
+0.5%
-0.5%
3.9
(3.9)
Life expectancy
+1 year
7.1
Measurement of provisions
The group’s provisions (per Note 27) comprise deferred contingent consideration and insurance reserves. The measurement of
provisions requires judgement. In particular the measurement of deferred contingent consideration is dependent on key assumptions
including future cashflows.
3
Revenue
2015
£m
2014
£m
2,265.8
2,113.2
0.4
29.4
2,266.2
2,142.6
7.6
78.5
2,273.8
2,221.1
Headline
Rendering of services
Construction contracts
Headline revenue
Other items
Construction contracts
Total revenue as disclosed in the consolidated income statement
Investment revenue (Note 8)
Total revenue as defined in IAS 18
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Mitie Group plc
0.3
1.2
2,274.1
2,222.3
Strategic Report
4
Governance
Financial
Business and geographical segments
The group manages its business on a service division basis. These divisions are the basis on which the group reports its primary
segmental information.
Business segments – structure during the year
2015
Headline
Headline
operating
operating
profit1 profit margin1
£m
%
Profit
before tax
£m
Revenue
£m
Headline
revenue1
£m
6.4
79.6
1,190.8
1,190.8
74.8
6.3
72.2
30.0
4.9
24.2
579.4
579.4
30.0
5.2
22.6
273.4
10.4
3.8
9.9
264.8
264.8
14.4
5.4
15.1
91.4
91.4
4.9
5.4
0.4
91.7
91.7
12.7
13.8
8.4
11.4
11.4
1.4
12.3
–
15.9
15.9
(4.4)
(27.7)
(5.0)
Revenue
£m
Headline
revenue1
£m
Soft FM
1,280.3
1,280.3
81.9
Hard FM
609.7
609.7
Property
Management
273.4
Healthcare
Energy Solutions
Other Items
(Note 5)
Total
2014
Headline
Headline
operating
operating
£m
%
Profit
before tax
£m
7.6
–
–
–
(72.6)
78.5
–
–
–
(44.9)
2,273.8
2,266.2
128.6
5.7
41.5
2,221.1
2,142.6
127.5
6.0
68.4
With effect from 1 April 2015 Energy Solutions is being reported as part of Hard FM. Soft FM, Healthcare and Property
Management remain unchanged. A proforma analysis of the financial results of the business for the year ended 31 March 2015 is set
out below.
Business segments – structure from 1 April 2015
2015
Headline
Headline
operating
operating
£m
%
Profit
before tax
£m
Revenue
£m
Headline
revenue1
£m
6.4
79.6
1,190.8
1,190.8
74.8
6.3
72.2
31.4
5.1
24.2
595.3
595.3
25.6
4.3
17.6
273.4
10.4
3.8
9.9
264.8
264.8
14.4
5.4
15.1
91.4
91.4
4.9
5.4
0.4
91.7
91.7
12.7
13.8
8.4
7.6
–
–
–
(72.6)
78.5
–
–
–
(44.9)
2,273.8
2,266.2
128.6
5.7
41.5
2,221.1
2,142.6
127.5
6.0
68.4
Revenue
£m
Headline
revenue1
£m
Soft FM
1,280.3
1,280.3
81.9
Hard FM
621.1
621.1
Property
Management
273.4
Healthcare
Other Items
(Note 5)
Total
2014
Headline
Headline
operating
operating
£m
%
Profit
before tax
£m
The revenue analysis above is net of inter-segment sales which are not considered significant.
No single customer accounted for more than 10% of external revenue in 2015 or 2014.
The Improvement to IFRS 8 issued in April 2009 clarified that a measure of segment assets should be disclosed only if that amount
is regularly provided to the chief operating decision maker and consequently no segment assets are disclosed.
Geographical segments
2015
Headline1
Headline1
operating
operating
profit profit margin
£m
%
Revenue
£m
Headline1
revenue
£m
United Kingdom
2,190.7
2,183.1
126.8
Other countries
83.1
83.1
1.8
2,273.8
2,266.2
128.6
Total
2014
Profit
before tax
£m
Revenue
£m
Headline1
revenue
£m
Headline1
operating
profit
£m
Headline1
operating
profit margin
%
Profit
before tax
£m
5.8
40.0
2,149.5
2,071.0
125.7
6.1
66.9
2.2
1.5
71.6
71.6
1.8
2.5
1.5
5.7
41.5
2,221.1
2,142.6
127.5
6.0
68.4
Note:
1 Headline revenue and operating profit exclude other items which are analysed in Note 5.
Mitie Group plc
105
5
Other items
The group’s chosen supplementary measure of performance is operating profit before other items (see Note 1). The group separately
identifies and discloses restructuring and acquisition related items (termed ‘other items’).
The results of the mechanical and electrical engineering construction businesses which are being exited are also presented in
Other items. During the year those businesses generated revenue of £7.6m (2014: £78.5m) and incurred a trading loss of £15.9m
(2014: £13.6m) . The businesses being exited do not meet the definition of discontinued operations as stipulated by IFRS 5
‘Non–current Assets Held for Sale and Discontinued Operations’ because the businesses have not been disposed of and there
are no assets classified as held for sale. Accordingly the disclosures within non-headline items differ from those applicable for
discontinued operations.
Within our Asset Management business, which became part of our Energy Solutions division, there are a small number of contracts
where the forecast operational and financial performance has deteriorated and where returns were highly uncertain. As a result of
significant deterioration in the forecast performance of three key remaining contracts, together with the decision taken by mutual
agreement with a customer to exit one contract which crystallised a loss, exceptional charges of £45.7m (2014: £25.4m) have been
included in other items. £27.2m of the £45.7m charge relates to the most material of these projects, O-Gen Plymtrek Limited:
The group has a 30% non-controlling equity interest in a special purpose company, O-Gen Plymtrek Limited (‘O-Gen’), to which
Mitie had extended subordinated debt. The balance of the subordinated debt included within Financing assets was £nil at 31 March
2015 (2014: £13.4m before provisions). As a result of a number of factors, and in particular the combination of not having a majority
of directors on the Board and having no veto rights over substantive matters, the group’s interest in O-Gen is accounted for as an
associate and is held at nil value (2014: nil). The Energy Solutions division had a contract to construct and operate a renewable energy
plant for O-Gen which had been subject to delays and considerable cost overruns. In the year ended 31 March 2014, these delays
and overruns gave rise to exceptional charges of £17.1m which were included within the exceptional charges in Energy Solutions of
£25.4m. These charges included impairment losses of £8.7m in respect of the subordinated debt and £3.0m in respect of trade and
other receivables. At 31 March 2014, the group’s trade and other receivables included a balance of £6.1m before provisions in respect
of the plant design and build contract. In our 2014 Annual Report and Accounts, the group disclosed a contingent liability with a
maximum value of £20.6m in relation to guarantees provided in respect of O-Gen. At 30 September 2014, the group reassessed its
exposure to O-Gen and, due to the deterioration in financial returns, accrued its potential liability under its guarantee arrangements
of £19.4m together with other charges of £9.6m relating to the residual financial exposure to the project. In December 2014, after
notification of further delays to the construction programme, the group decided to stop construction of the energy plant. As a
consequence, the main funder of the project exercised its rights under one of the project’s financing agreements and on 27 March
2015 Mitie paid £15.9m in cash to settle its residual liability to the funder. O-Gen sold its interest in the energy plant in March 2015.
A total of £27.2m (2014: £17.1m) of exceptional charges have been recognised in respect of the project during the year and are
included within Other items. These charges include impairment losses of £4.7m (2014: £8.7m) and £3.1m (2014 £3.0m) in respect
of the group’s subordinated debt and trade and other receivables respectively. At 31 March 2015, all financial assets in relation to
O-Gen were fully impaired (2014: £13.4m and £6.1m gross carrying values in respect of the subordinated debt and trade and other
receivables respectively) and Mitie has no remaining obligations or liabilities in connection with the project.
Acquisition costs in the year to 31 March 2015 relate to the acquisition of Procius Limited and Source Eight Limited.
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Governance
Financial
Other items
Other items impacted administrative expenses with the exception of £9.8m of trading losses (2014: £2.0m profit) which impacted
gross profit.
2015
Restructuring
and acquisition
related costs
£m
Businesses
being exited
£m
2014
Other items
£m
Restructuring
and acquisition
related costs
£m
Businesses
being exited
£m
Other items
£m
Revenue
–
7.6
7.6
–
78.5
78.5
Cost of Sales
–
(17.4)
(17.4)
–
(76.5)
(76.5)
–
(6.1)
(6.1)
–
(15.6)
(15.6)
(45.7)
–
(45.7)
(25.4)
–
(25.4)
Restructuring costs relating to the integration
of Complete Group (2014: Enara and
Complete Group)
(0.6)
–
(0.6)
(4.4)
–
(4.4)
Acquisition costs
(0.3)
–
(0.3)
(0.7)
–
(0.7)
Amortisation of acquisition related intangibles
(10.1)
–
(10.1)
(11.0)
–
(11.0)
–
–
–
10.2
–
10.2
(56.7)
(15.9)
(31.3)
(13.6)
(44.9)
Administrative expenses:
Overheads
Exceptional charges in relation to design
and build Asset Management contracts in
Energy Solutions
Restructuring of Mitie Group defined benefit
pension scheme
Other items before tax
Tax on other items
(72.6)
3.7
2.0
5.7
(27.6)
(11.6)
(39.2)
2015
£m
2014
£m
Depreciation of property, plant and equipment (Note 15)
19.7
16.1
Amortisation of intangible assets (Note 14)
13.8
17.0
Other items net of tax
6
15.0
3.3
18.3
(41.7)
(12.6)
(54.3)
Operating profit
Operating profit has been arrived at after charging/(crediting):
Loss/(gain) on disposal of property, plant and equipment
Staff costs (Note 7)
0.3
(0.7)
1,149.9
1,136.7
Mitie Group plc
107
6
Operating profit
A detailed analysis of auditor’s remuneration is provided below:
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
2015
£’000
2014
£’000
33
33
Fees payable to the Company’s auditor and its associates for the audit of the Company’s
subsidiaries pursuant to legislation
605
586
Total audit fees
638
619
Other audit related services to the group
80
50
Tax services
89
140
Corporate finance service
125
99
Other services
36
10
Non-audit fees
330
299
968
918
Total
In addition to the amounts shown above the auditor received fees of £nil (2014: £19,000) for the audit of the group pension scheme
and trusts.
7
Staff costs
Number of people
2015
2014
56,473
57,410
The average number of people employed during the financial year was:
Soft FM
Hard FM
5,015
4,841
Property Management
2,286
3,297
Healthcare
6,605
6,587
Energy Solutions
Total group
116
113
70,495
72,248
69,557
72,768
2015
£m
2014
£m
The number of people employed at 31 March was:
Total group
Their aggregate remuneration comprised:
Wages and salaries
1,042.9
1,035.8
Social security costs
81.6
80.5
Other pension costs
18.9
15.4
Share-based payments (Note 35)
6.5
5.0
1,149.9
1,136.7
Details of Directors’ remuneration and interests are provided in the audited section of the Directors’ remuneration report and should
be regarded as an integral part of this Note.
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Governance
Financial
Investment revenue
2015
£m
2014
£m
Interest on bank deposits
0.3
0.2
Other interest receivable
–
1.0
0.3
1.2
2015
£m
2014
£m
Interest on bank facilities
1.4
2.1
Interest on private placement loan notes
9.6
9.5
9
Finance costs
Bank fees
2.8
2.3
Interest on obligations under finance leases
0.2
0.3
(Gain)/loss arising on derivatives in a designated fair value hedge
(3.7)
3.8
Loss/(gain) arising on adjustment for the hedged item in a designated fair value hedge
3.8
(4.0)
Net interest on defined benefit pension scheme assets and liabilities
0.7
1.4
14.8
15.4
2015
£m
2014
£m
9.7
19.1
(3.9)
0.8
5.8
19.9
10 Tax
Current tax
Deferred tax (Note 21)
Corporation tax is calculated at 21.0% (2014: 23.0%) of the estimated taxable profit for the year.
A reconciliation of the tax charge to the elements of profit before tax per the consolidated income statement elements is as follows:
2015
Headline
£m
Other items
£m
2014
Total
£m
Headline
£m
Other items
£m
Total
£m
Profit before tax
114.1
(72.6)
41.5
113.3
(44.9)
68.4
Tax at UK rate of 21.0% (2014: 23%)
23.9
(15.2)
8.7
26.0
(10.3)
15.7
Reconciling tax charges for:
Non-tax deductible charges
Energy Solutions contract exit costs
Overseas tax rates
Impact of change in statutory tax rates
Prior year adjustments
Tax charge for the year
Effective tax rate for the year
0.7
0.1
0.8
0.6
0.2
0.8
–
(3.2)
(3.2)
–
3.3
3.3
0.1
–
0.1
0.2
–
0.2
–
–
–
(1.0)
–
(1.0)
(0.6)
(0.2)
1.1
0.9
5.8
25.6
(5.7)
19.9
14.0%
22.6%
12.7%
29.1%
(0.6)
24.1
21.1%
–
(18.3)
25.2%
In addition to the amounts charged to the consolidated income statement, a tax credit relating to retirement benefit costs and
hedged items amounting to £3.2m (2014: £1.8m charge) has been taken directly to the statement of comprehensive income and
£0.1m relating to share-based payments has been charged (2014: £1.0m credited) directly to equity.
Mitie Group plc
109
10 Tax
The effective tax rate on Headline profits is generally higher than the statutory tax rate due to entertaining costs, commercial
property depreciation and share-based payment charges not being wholly tax deductible and tax losses incurred overseas. In the
prior year this was offset by the restatement of deferred tax items for the legislated change in the UK corporate tax rate from 23%
to 20%.
The effective tax rate on Other items generally differs from the statutory rate due to tax relief not being obtained for certain
acquisition costs. In the prior year tax relief was not fully recognised on provisions relating to the exit from Energy Solutions
design and build contracts, as the form of the exit from certain joint venture arrangements was not agreed. Exit from these contracts
was completed in the current year and tax relief is now recognised on the basis of the actual costs incurred. Accordingly, the higher
effective tax relief rate in the current year reflects a reversal of the lower effective rate in the prior year. The prior year charge in 2014
was due to the lapse of historic tax losses in businesses being exited and is not repeated in the current year.
11
Dividends
2015
£m
2014
£m
Final dividend for the year ended 31 March 2014 of 6.1p (2013: 5.7p) per share
21.9
20.5
Interim dividend for the year ended 31 March 2015 of 5.2p (2014: 4.9p) per share
18.6
17.6
40.5
38.1
22.9
21.9
Amounts recognised as distributions to equity holders in the year:
Proposed final dividend for the year ended 31 March 2015 of 6.5p (2014: 6.1p) per share
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as
a liability in these financial statements.
12 Earnings per share
Basic and diluted earnings per share have been calculated in accordance with IAS 33 ‘Earnings Per Share’.
The calculation of the basic and diluted EPS is based on the following data:
2015
£m
2014
£m
Net headline profit attributable to equity holders of the parent
89.3
87.5
Other items net of tax
(54.3)
(39.2)
Net profit attributable to equity holders of the parent
35.0
48.3
Number of shares
2015
million
2014
million
359.3
359.9
10.4
11.1
369.7
371.0
2015
p
2014
p
24.8
24.3
9.7
13.4
24.2
23.6
9.5
13.0
Weighted average number of Ordinary shares for the purpose of basic EPS
Effect of dilutive potential Ordinary shares: share options
Weighted average number of Ordinary shares for the purpose of diluted EPS
Headline basic earnings per share1
Basic earnings per share
1
Headline diluted earnings per share
Diluted earnings per share
Notes:
1 Headline revenue and operating profit exclude other items which are analysed in Note 5.
The weighted average number of Ordinary shares in issue during the year excludes those accounted for in the Own shares reserve
(see Note 31).
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Financial
13 Goodwill
Cost
£m
At 1 April 2013
447.2
Acquisition of subsidiaries
12.7
Impact of foreign exchange
(0.3)
At 1 April 2014
459.6
5.7
Impact of foreign exchange
(0.9)
At 31 March 2015
464.4
Accumulated impairment losses
At 1 April 2013
–
At 1 April 2014
–
At 31 March 2015
–
Carrying amount
At 31 March 2015
464.4
At 31 March 2014
459.6
Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (CGUs) that are expected to
benefit from that business combination. Additions during the year relate to goodwill recognised on two acquisitions and finalisation of
the acquisition accounting for acquisitions made in the prior year. More details are presented in the Acquisitions note (Note 32).
Goodwill has been allocated to CGUs, which align with the business segments, as this is how goodwill is monitored by the group
internally. Goodwill has arisen principally on the acquisitions of Initial Security in 2006, Dalkia Technical Facilities Management in
2009 and Enara in 2012.
Discount rate
2015
%
Discount rate
2014
%
Goodwill
2015
£m
Goodwill
2014
£m
Soft FM
8.7
9.8
171.3
168.1
Hard FM
8.7
9.8
83.8
83.8
Property Management
10.0
11.0
85.2
85.2
Healthcare
10.0
11.0
106.6
105.0
Energy Solutions
10.0
12.0
17.5
17.5
464.4
459.6
The group tests goodwill at least annually for impairment or more frequently if there are indicators that goodwill may be impaired.
Mitie Group plc
111
13 Goodwill
Key assumptions
The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use
calculations are those regarding the discount rates, growth rates and expected changes to revenue and direct costs during the
period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of
money and the risks specific to the CGUs. The growth rates are based on industry growth forecasts. Changes in revenue and direct
costs are based on past practices and expectations of future changes in the market.
Management recognise that there has been a deterioration in the profitability of the Healthcare business in the last financial year.
The decline has been driven by a combination of market pricing pressures due to local authority spending cuts and difficulties in
recruiting and retaining healthcare workers in a significantly improving jobs market. We have undertaken a complete review of the
business resulting in changes to the operating model and a reinvigorated business plan which supports our long term view of the
growth rates for this business.
Growth rates and terminal values
The group prepares cash flow forecasts derived from the most recent one year financial budgets approved by the Board,
extrapolated for four future years by the expected growth applicable to each unit with a terminal value using an inflationary growth
rate assumption in the range 2.0% – 2.5% dependent on the CGU.
Discount rates
The pre-tax rates used to discount the forecast cash flows from CGUs are derived from the Company’s post-tax Weighted Average
Cost of Capital, which was 7.4% (2014: 8.2%) at 31 March 2015, and adjusted for the risks specific to the market in which the CGU
operates. All CGUs have the same access to the group’s Treasury functions and borrowing lines to fund their operations.
Sensitivity analysis
A sensitivity analysis has been performed and the Directors have concluded that no reasonably foreseeable change in the key
assumptions would result in an impairment of the goodwill of any of the Soft Facilities Management, Hard Facilities Management,
Property Management and Energy Solutions CGUs. In particular, a 1% increase in the discount rate or a 1% decrease in the terminal
value growth rate would not result in impairment in any of these CGUs.
Further sensitivity testing was performed for the group’s Healthcare CGU as it has seen deterioration in profitability in the last
financial year following two years of good performance. The Directors believe that the assumptions within the business plan for
the Healthcare business are reasonable and there is headroom between the carrying value of goodwill for that CGU and the net
present value of the future cash flows that are expected to be generated by the business. There continues to be significant focus
on and investment in the healthcare business and the Directors continue to see long term growth opportunities in the domiciliary
care market. The Directors recognise that it is possible that an impairment to the healthcare goodwill could be identified if the
performance of the business does not improve as expected over the longer term in line with the business plan. Factors that could
cause deterioration in the future cash flows of the business compared to the plan and cause an impairment in goodwill include;
a the inability to recruit and retain staff at appropriate wage rates;
a the inability to win new and retain contracts to provide care hours at sustainable prices; and
a an adverse structural change to outsourcing of care in the UK caused by changes in UK Government policy.
We have considered the impact of a range of sensitivities on the headroom between the recoverable amount and the carrying value
of the goodwill attributable to the Healthcare CGU. The carrying value of goodwill (and other intangible assets) becomes equal to its
recoverable amount following the application of the following sensitivities:
a an increase in the pre-tax discount rate of 3%; or
a a fall in the terminal value growth rate to a negative long-term inflationary assumption of 1%; or
a a 34% reduction in operating profit by year 5 compared to the plan.
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14 Other intangible assets
Acquisition related
Other
£m
Total
acquisition
related
£m
Software and
development
expenditure
£m
Total
£m
84.7
10.5
95.2
40.4
135.6
2.1
–
2.1
6.2
8.3
86.8
10.5
97.3
46.6
143.9
1.6
0.4
2.0
3.9
5.9
–
–
–
5.2
5.2
88.4
10.9
99.3
55.7
155.0
At 1 April 2013
31.5
7.4
38.9
8.7
47.6
Charge for the year
10.2
0.8
11.0
6.0
17.0
Customer
relationships
£m
Cost
At 1 April 2013
Additions
At 1 April 2014
Additions
Reclassifications from Property,
plant and equipment (Note 15)
At 31 March 2015
Amortisation
41.7
8.2
49.9
14.7
64.6
Charge for the year
At 1 April 2014
9.5
0.6
10.1
3.7
13.8
At 31 March 2015
51.2
8.8
60.0
18.4
78.4
37.2
2.1
39.3
37.3
76.6
45.1
2.3
47.4
31.9
79.3
Carrying amount
At 31 March 2015
At 31 March 2014
Customer relationships are amortised over their useful lives based on the period of time over which they are anticipated to generate
benefits. These currently range from four to eight years. Other acquisition related intangibles include acquired software, trade names
and non-compete agreements and are amortised over their useful lives which currently range from three to ten years. Software and
development costs are amortised over their useful lives of between five and ten years, once they have been brought into use.
Mitie Group plc
113
15 Property, plant and equipment
Freehold
properties
£m
Leasehold
properties
£m
Plant and
vehicles
£m
Total
£m
4.8
15.6
97.8
118.2
Additions
–
2.4
20.2
22.6
Disposals
(1.5)
(2.3)
(16.2)
(20.0)
Cost
At 1 April 2013
3.3
15.7
101.8
120.8
Additions
At 1 April 2014
–
3.1
20.5
23.6
Reclassifications to intangible assets (Note 14)
–
–
(5.2)
(5.2)
(0.6)
(0.8)
(7.7)
(9.1)
2.7
18.0
109.4
130.1
Disposals
At 31 March 2015
Accumulated depreciation and impairment
At 1 April 2013
1.0
7.6
53.4
62.0
Charge for the year
0.1
1.6
14.4
16.1
(0.4)
(1.7)
(11.9)
(14.0)
0.7
7.5
55.9
64.1
19.7
Disposals
At 1 April 2014
Charge for the year
Disposals
At 31 March 2015
–
1.7
18.0
(0.1)
(0.8)
(6.1)
0.6
8.4
67.8
76.8
2.1
9.6
41.6
53.3
2.6
8.2
45.9
56.7
(7.0)
Carrying amount
At 31 March 2015
At 31 March 2014
The net book value of plant and vehicles held under finance leases included above was £3.4m (2014: £4.9m).
Additions to fixtures and equipment during the year amounting to £0.6m (2014: £2.0m) were financed by new finance leases.
16 Interest in joint ventures and associates
The group’s interests in joint ventures and associates are accounted for in the consolidated financial statements using the
equity method.
The group’s share of result of joint ventures and associates included in the consolidated income statement was as follows:
2015
£m
2014
£m
Revenue
3.8
3.3
Operating profit
0.7
0.6
–
(0.1)
0.7
0.5
Net finance costs
Share of result of joint ventures and associates
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16 Interest in joint ventures and associates
The group’s share of net assets of joint ventures and associates as at 31 March 2015 was as follows:
2015
£m
2014
£m
Non-current assets
1.7
13.1
Current assets
1.3
1.2
Current liabilities
(0.6)
(2.4)
Non-current liabilities
(1.3)
(11.0)
1.1
0.9
Interest in joint ventures and associates
Joint ventures and associated undertakings are not material to the group. None have significant restrictions on the ability to transfer
funds to the group in the form of cash dividends, or to repay loans or advances made by the group. Exceptional charges arose in
connection with the group’s participation in an associated undertaking, O-Gen Plymtrek Limited (see Note 5).
17
Financing assets
2015
£m
2014
£m
Derivative financial instruments (Note 26)
6.8
–
Loans to joint ventures and associates
1.2
14.8
–
5.6
8.0
20.4
Infrastructure assets
Included in current assets
Included in non-current assets
–
–
8.0
20.4
8.0
20.4
2015
£m
2014
£m
202.3
259.0
18 Trade and other receivables
Amounts receivable for the sale of services
Allowance for doubtful debt
Trade receivables
Amounts recoverable on construction contracts (Note 19)
Mobilisation costs (Note 20)
(8.4)
(6.2)
193.9
252.8
8.1
13.0
30.6
30.3
192.6
183.4
Prepayments
38.2
28.9
Other debtors
16.5
24.4
479.9
532.8
421.4
491.6
Accrued income
58.5
41.2
479.9
532.8
Mitie Group plc
115
18 Trade and other receivables
Ageing of trade receivables:
Neither impaired nor past due
2015
£m
2014
£m
149.7
198.6
Not impaired and less than three months overdue
34.6
36.5
Not impaired and more than three months overdue
13.5
21.3
4.5
2.6
Impaired receivables
Allowance for doubtful debt
(8.4)
(6.2)
193.9
252.8
2015
£m
2014
£m
6.2
6.0
Movement in the allowance for doubtful debt:
Balance at the beginning of the year
Impairment losses recognised
5.6
2.5
Amounts written off as uncollectable
(2.4)
(1.1)
Amounts recovered during the year
(1.0)
(1.2)
8.4
6.2
2015
£m
2014
£m
The average credit period taken on sales of services was 26 days (2014: 37 days).
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
19 Amounts recoverable on construction contracts
Contracts in progress at the balance sheet date
Construction contract costs incurred plus recognised profits less recognised losses to date
Less progress billings
Amounts due from construction contract customers included in trade and other receivables
127.1
268.5
(119.0)
(255.5)
8.1
13.0
8.1
12.5
–
0.5
8.1
13.0
At 31 March 2015, retentions held by customers for contract work amounted to £2.8m (2014: £8.9m).
Amounts recoverable on construction contracts include applications for payment from customers which have no fixed payment
terms until invoiced.
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20 Mobilisation costs
Mobilisation costs
2015
£m
2014
£m
At 1 April
30.3
23.2
Additions
19.6
15.7
Amounts recognised in the income statement
(19.3)
(8.6)
30.6
30.3
12.4
13.7
18.2
16.6
30.6
30.3
At 31 March
21 Deferred tax
The following are the major deferred tax liabilities and assets recognised by the group and movements thereon during the current
and prior reporting period:
Share options
£m
Short-term
timing
differences
£m
Tax losses
£m
Total
£m
(12.8)
0.9
4.3
1.9
0.8
(2.0)
4.0
(0.3)
(1.2)
(1.8)
(0.8)
–
(1.1)
–
0.5
(0.6)
–
(1.2)
–
–
(0.5)
–
0.8
–
0.3
0.1
3.8
(9.3)
1.1
3.3
0.1
(0.9)
0.4
0.3
2.2
1.0
0.1
(0.1)
3.9
–
3.0
–
(0.2)
0.2
–
3.0
–
–
(0.4)
–
0.3
–
(0.1)
0.5
7.1
(7.5)
1.9
3.9
–
5.9
Accelerated tax
depreciation
£m
Retirement
benefit
obligations
£m
Intangible
assets
acquired
£m
(0.4)
6.9
0.5
(Charge)/credit to equity and the
statement of comprehensive income
At 1 April 2013
Credit/(charge) to income
At 1 April 2014
Credit/(charge) to income
(Charge)/credit to equity and the
statement of comprehensive income
At 31 March 2015
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for
financial reporting purposes:
2015
£m
Deferred tax assets
Deferred tax liabilities
Net deferred tax asset/(liability)
13.4
2014
£m
8.4
(7.5)
(9.3)
5.9
(0.9)
The group has unutilised income tax losses of £10.2m (2014: £8.5m) that are available for offset against future profits. In addition the
group has £0.8m (2014: £0.8m) of capital losses.
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117
22 Inventories
2015
£m
2014
£m
Work-in-progress
4.5
2.9
Materials
6.5
4.5
11.0
7.4
2015
£m
2014
£m
96.4
89.1
96.4
89.1
23 Cash and cash equivalents
Cash and cash equivalents comprise cash held by the group and short-term bank deposits with an original maturity of three months
or less. The carrying amount of the assets approximates their fair value.
Included in cash and cash equivalents are deposits totalling £0.9m (2014: £2.1m) held by the group’s insurance subsidiary, which are
not readily available for the general purposes of the group.
24 Trade and other payables
Payments received on account
Trade creditors
Other taxes and social security
Other creditors
Accruals
Deferred income
Put options on non-controlling interests
Included in current liabilities
Included in non-current liabilities
2015
£m
2014
£m
2.4
1.4
201.8
186.9
84.8
96.8
13.1
17.9
132.1
190.3
41.8
32.3
8.0
–
484.0
525.6
476.0
525.6
8.0
–
484.0
525.6
Trade creditors, accruals and deferred income principally comprise amounts outstanding for trade purchases and ongoing costs.
The average credit period taken for trade purchases is 44 days (2014: 46 days).
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
The non-controlling interest shareholders of Source Eight Limited, in which Mitie bought a controlling interest during the year
(see Notes 26 and 32), have put options that can oblige the group to purchase their shareholdings. A financial liability of £8.0m
has been recognised in respect of the put options based on the present value of their expected redemption price. The options
are exercisable in tranches between 2017 and 2019. The maximum amount payable is £12.5m.
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25 Financing liabilities
2015
£m
Bank loans
Private placement notes
13.9
15.3
263.6
245.2
–
10.3
3.5
4.9
281.0
275.7
1.8
2.7
279.2
273.0
281.0
275.7
Derivative financial instruments
Obligations under finance leases (Note 28)
2014
£m
The banking facilities and private placement notes are unsecured but have financial and non-financial covenants and obligations
commonly associated with these arrangements.
Included in current liabilities are £1.8m (2014: £2.7m) of obligations under finance leases (see Note 28).
With the exception of derivative financial instruments and the private placement notes, all financing liabilities are held at amortised
cost. The Directors estimate that their carrying value approximates their fair value. Derivative financial instruments are initially
recognised at fair value at the date the contract is entered into and are subsequently remeasured to their fair value through profit
or loss unless they are designated as hedges for which hedge accounting can be applied (see Note 26). The carrying value of the
private placement notes at 31 March 2015 includes a fair value adjustment for interest rate and currency risk of £0.9m (2014: £0.6m).
The fair value of the private placement notes is not significantly different from their carrying value.
On 13 December 2012, the group issued US$153.0m and £55.0m of private placement (‘PP’) notes in the United States Private
Placement market. This followed the issue on 16 December 2010 of US$96.0m and £40.0m of PP notes in the United States
Private Placement market. The PP notes are unsecured and rank pari passu with other senior unsecured indebtedness of the group.
In order to manage the risk of foreign currency fluctuations and to manage the group’s finance costs through a mix of fixed and
variable rate debt, the group has entered into cross currency interest rate swaps. The swap contracts have the same duration and
other critical terms as the borrowings and are considered to be highly effective. The amount, maturity and interest terms of the PP
notes are as shown below:
Tranche
Maturity date
Amount
Interest terms
Swap interest
7 year
16 December 2017
US$48.0m
US$ fixed at 3.39%
£ fixed at 3.88%
7 year
16 December 2017
US$48.0m
US$ fixed at 3.39%
£ LIBOR + 1.26%
9 year
16 December 2019
£40.0m
£ fixed at 4.38%
n/a
10 year
16 December 2022
US$76.0m
US$ fixed at 3.85%
£ fixed at 4.05%
10 year
16 December 2022
US$77.0m
US$ fixed at 3.85%
£ fixed at 4.02%
10 year
16 December 2022
£25.0m
£ fixed at 3.87%
n/a
12 year
16 December 2024
£30.0m
£ fixed at 4.04%
n/a
The weighted average interest rates paid during the year on the overdrafts and loans outstanding were as follows:
2015
%
2014
%
Overdrafts
2.7
2.5
Bank loans
1.5
1.9
3.8
3.8
At 31 March 2015, the group had available £261.1m (2014: £234.7m) of undrawn committed borrowing facilities in respect of which all
conditions precedent had been met. The facilities have an expiry date of July 2019. The loans carry interest rates which are currently
determined at 1.0% over LIBOR. Details of the group’s contingent liabilities are provided in Note 33.
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119
26 Financial instruments
Classification
The group’s principal financial assets are cash and cash equivalents, trade receivables and financing assets. With the exception
of derivative financial instruments, all financial assets are classified as loans and receivables.
The group’s principal financial liabilities are trade payables, financing liabilities and deferred contingent consideration. With the
exception of derivative financial instruments, private placement notes and deferred contingent consideration, all financial liabilities
are held at amortised cost.
Derivative financial instruments, and private placement loan notes are measured initially at fair value at the date the contract is
entered into and are subsequently remeasured to their fair value through profit or loss unless they are designated as hedges for
which hedge accounting can be applied. Deferred contingent consideration is measured at the Directors’ best estimate of the likely
future obligation.
Details of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement
and the bases for recognition of income and expense) for each class of financial asset, financial liability and equity instrument are
disclosed in Note 1.
Risk management objectives
The group’s treasury function monitors and manages the financial risks relating to the operations of the group. These risks include
those arising from interest rates, foreign currencies, liquidity, credit and capital management. The group seeks to minimise the
effects of these risks by using effective control measures and, where appropriate, derivative financial instruments to hedge certain
risk exposures. The use of financial derivatives is governed by group policies and reviewed regularly. Group policy is not to trade in
financial instruments. The risk management policies remain unchanged from the previous year.
Interest rate risk
The group’s activities expose it to the financial risks of interest rates. The group’s Treasury function reviews its risk management
strategy on a regular basis and will appropriately enter into derivative financial instruments in order to manage interest rate risk.
Having issued US$249.0m and £95.0m of notes in the US PP fixed rate market, the group has swapped US$48.0m into floating
rate debt. Details of derivative financial instruments are given in Derivative financial instruments below.
Interest rate sensitivity
The interest rate sensitivity has been determined based on the exposure to interest rates for both derivative and non-derivative
instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability
outstanding at the balance sheet date was outstanding for the whole year. All financial liabilities, other than financing liabilities,
are interest free.
If interest rates had been 0.5% higher/lower and all other variables were held constant, the group’s profit after tax for the year
ended 31 March 2015 and reserves would decrease/increase by £0.3m (2014: £0.2m).
Foreign currency risk
The group has limited exposure to transactional foreign currency risk from trading transactions in currencies other than the
functional currency of individual group entities and some exposure to translational foreign currency risk from the translation of
its operations in Europe. The group considers the need to hedge its exposures appropriately and will enter into forward foreign
exchange contracts to mitigate any significant risks.
In addition, the group has fully hedged the US dollar exposure on its PP notes into sterling using cross currency interest rate swaps
(see Hedging activities below).
At 31 March 2015 £5.5m (2014: £3.9m) of cash and cash equivalents were held in foreign currencies. Included in bank loans were
£13.9m (2014: £15.3m) of loans denominated in foreign currency.
Liquidity risk
The group monitors its liquidity risk using a cash flow projection model which considers the maturity of the group’s assets and
liabilities and the projected cash flows from operations. Bank facilities, which allow for appropriate headroom in the group’s daily
cash movements, are then arranged. Details of our bank facilities can be found in Note 25.
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26 Financial instruments
The tables below summarise the maturity profile (including both undiscounted interest and principal cash flows) of the group’s
financial liabilities:
Financial liabilities at 31 March 2015
Trade creditors
Put options on non-controlling interests
Deferred contingent consideration
Financial liabilities
Financial liabilities at 31 March 2014
Trade creditors
Financial liabilities
Within
one year
£m
In the second
to fifth years
£m
After
five years
£m
Total
£m
198.7
–
–
198.7
26.3
143.5
172.9
342.7
–
11.0
–
11.0
4.9
6.5
–
11.4
229.9
161.0
172.9
563.8
Within
one year
£m
In the second
to fifth years
£m
After
five years
£m
Total
£m
186.9
–
–
186.9
12.8
115.3
216.7
344.8
1.3
6.5
–
7.8
201.0
121.8
216.7
539.5
Credit risk
The group’s credit risk is monitored on an ongoing basis and formally reported quarterly. The value of business placed with financial
institutions is reviewed on a daily basis.
The group’s credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high
credit ratings assigned by international credit rating agencies and are managed through regular review.
The amounts presented in the balance sheet in relation to the group’s trade receivables are net of allowances for doubtful receivables.
The group’s credit risk is primarily attributable to its trade receivables. Before accepting a new customer, the group uses
external credit scoring systems to assess the potential customer’s credit quality and define an appropriate credit limit which is
reviewed regularly.
In determining the recoverability of a trade receivable, the group considers the credit quality of the counterparty. An allowance
for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in
the recoverability of the cash flows. The Directors believe that there is no further provision required in excess of the allowance for
doubtful debts at the balance sheet date.
The maximum exposure to credit risk in relation to trade receivables at the balance sheet date is the fair value of trade receivables.
The group’s customer base is large and unrelated and, accordingly, the group does not have a significant concentration of credit risk
with any one counterparty or group of counterparties.
Capital management risk
The group manages its capital to ensure that entities in the group will be able to continue as going concerns while maximising the
return to stakeholders through the optimisation of debt and equity. The capital structure of the group consists of net debt per Note
29 and equity per the consolidated statement of changes in equity.
The group’s capital structure is reviewed regularly. In 2013, the Board approved a share purchase policy to maintain share numbers
at a broadly consistent level year on year with the aim of ensuring that the interests of shareholders are not diluted by the issue of
shares that support the group’s various share schemes, nor by the issue of shares as consideration for earn outs under the Mitie
model. During the year, the group bought back nil (2014: 2.9m) shares at a cost of £nil (2014: £7.4m) and subsequently cancelled
these shares. To offset shares issued under various share schemes and to hedge against shares to be issued in the future, 3.7m
(2014: 5.8m) shares were bought to be held in Treasury at a total cost of £10.7m (2014: £17.0m) . Further details are provided in
Notes 30 and 31.
The group is not subject to externally imposed regulatory capital requirements with the exception of those applicable to the group’s
captive insurance subsidiary, which is monitored on a regular basis.
Mitie Group plc
121
26
Hedging activities
Cash flow hedges
The group holds a number of cross currency interest rate swaps designated as cash flow hedges. Bi-annual fixed interest cash flows
arising over the periods to December 2022 and denominated in US$ from the US Private Placement market are exchanged for fixed
interest cash flows denominated in sterling. The group also holds a number of forward exchange currency contracts designated as
hedges of highly probable forecast transactions. All cash flow hedges were assessed as being highly effective as at 31 March 2015.
Fair value hedges
The group holds a number of cross currency interest rate swaps designated as fair value hedges. Fixed interest cash flows
denominated in US$ from the US Private Placement market are exchanged for floating interest cash flows denominated in sterling.
All fair value hedges were assessed as being highly effective as at 31 March 2015.
Hedge of net investment in foreign operations
Included in bank loans at 31 March 2015 was a borrowing of €9.5m (2014: €9.5m) which has been designated as a hedge of the
net investment in the Republic of Ireland business of Dalkia FM in Ireland and is being used to hedge the group’s exposure to foreign
exchange risk on this investment. Gains or losses on the translation of the borrowing are transferred to equity to offset gains or
losses on the translation of the net investment.
Derivative financial instruments
The carrying values of derivative financial instruments at the balance sheet date were as follows:
Assets
2015
£m
Assets
2014
£m
Liabilities
2015
£m
Liabilities
2014
£m
Cross currency interest rate swaps designated as cash flow hedges
3.7
–
–
(9.7)
Cross currency interest rate swaps designated as fair value hedges
3.1
–
–
(0.6)
Derivative financial instruments hedging private placement notes
6.8
–
–
(10.3)
Derivative financial instruments are measured at fair value. Fair values of derivative financial instruments are calculated based on a
discounted cash flow analysis using appropriate market information for the duration of the instruments.
Financial instruments fair value disclosure
Fair value measurements are classified into three levels, depending on the degree to which the fair value is observable:
a Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities;
a Level 2 fair value measurements are those derived from other observable inputs for the asset or liability; and
a Level 3 fair value measurements are those derived from valuation techniques using inputs that are not based on observable
market data.
We consider that the derivative financial instruments fall into Level 2 and that deferred contingent consideration and put options on
non-controlling interests fall into Level 3.
Deferred contingent consideration is measured at the Directors’ best estimate of the likely future obligation based on the attainment
of certain profit targets. In assessing the likely future obligation, the directors have used their experience and knowledge of market
conditions, alongside internal business plans and growth forecasts. Actual amounts payable may vary up to a maximum of £11.4m
(2014: £7.8m) dependent upon the results of the acquired businesses. The put options of non-controlling interests (see Note 32) are
measured at amortised cost based on the expected redemption value, which is determined by the Directors’ best estimate of the
present value of the likely future obligation based on the attainment of certain profit targets.
The following table shows the reconciliation from the opening to closing balances for Level 3 fair values:
Deferred
contingent
consideration
£m
Put options of
non-controlling
interests
£m
At 1 April 2014
7.8
–
Arising from business combinations in the period
1.1
–
Put options of non-controlling interests granted in the period
–
7.8
Movement of put options recognised in equity
–
0.2
2.5
–
11.4
8.0
Other amounts recognised through equity arising from transactions from non-controlling interests
At 31 March 2015
There were no transfers between levels during the year. All contracts are gross settled.
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27 Provisions
At 1 April 2014
Deferred
contingent
consideration
£m
Insurance
reserve
£m
Total
£m
7.8
2.2
10.0
–
0.1
0.1
1.1
–
1.1
–
(1.4)
(1.4)
Amounts recognised in the income statement
Amounts recognised through goodwill
Utilised within the captive insurance subsidiary
Amounts recognised through equity
At 31 March 2015
2.5
–
2.5
11.4
0.9
12.3
4.9
7.4
12.3
The provision for insurance claims represents amounts payable by Mitie Reinsurance Company Limited in respect of outstanding
claims incurred at the balance sheet dates. These amounts will become payable as each year’s claims are settled.
The deferred contingent consideration recognised through goodwill of £1.1m relates to the acquisitions of Procius Limited and Source
Eight Limited (see Note 32).
Amounts recognised through equity of £2.5m arises from transactions with non-controlling interests and comprises £3.8m in
respect of the purchase of the remaining 49% in Direct Enquiries Holdings Limited net of a £1.3m release in respect of Mitie Security
Holdings Limited (see Note 32).
28 Obligations under finance leases
Minimum lease payments
2015
£m
Present value of lease payments
2014
£m
2015
£m
2014
£m
Amounts payable under finance leases:
Within one year
1.8
2.9
1.8
2.7
In the second to fifth years inclusive
2.0
2.5
1.7
2.2
3.8
5.4
3.5
4.9
(0.3)
(0.5)
–
–
3.5
4.9
3.5
4.9
(1.8)
(2.7)
(1.8)
(2.7)
1.7
2.2
1.7
2.2
Less: future finance charges
Present value of lease obligations
Less: Amount due for settlement within 12 months
Amount due for settlement after 12 months
The average remaining lease term is 17 months (2014: 52 months). For the year ended 31 March 2015, the average effective
borrowing rate was 4.5% (2014: 2.5%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and
no arrangements have been entered into for contingent rental payments. All lease obligations are denominated in sterling.
The fair value of the group’s lease obligations approximates their carrying amount. The group’s obligations under finance leases
are protected by the lessors’ rights over the leased assets.
Mitie Group plc
123
29 Analysis of net debt
2015
£m
2014
£m
Cash and cash equivalents (Note 23)
96.4
89.1
Bank loans (Note 25)
(13.9)
(15.3)
(263.6)
(245.2)
Private placement notes (Note 25)
Derivative financial instruments hedging private placement notes (Note 26)
Net debt before obligations under finance leases
Obligations under finance leases (Note 28)
Net debt
6.8
(10.3)
(174.3)
(181.7)
(3.5)
(4.9)
(177.8)
(186.6)
30 Share capital
Number
million
£m
373.5
9.3
1.7
0.1
375.2
9.4
370.1
9.3
Issued for acquisitions
2.3
–
Share buybacks
(2.9)
(0.1)
Ordinary shares of 2.5p
Allotted and fully paid
At 1 April 2014
Issued under share option schemes
At 31 March 2015
At 1 April 2013
Issued under share option schemes
At 31 March 2014
4.0
0.1
373.5
9.3
During the year no (2014: 2.3m) Ordinary shares of 2.5p were allotted in respect of the acquisition of non-controlling interests
(2014: at a mid-market price of 267.0p) giving rise to share premium of £nil (2014: £2.4m) and a merger reserve of £nil (2014: £3.6m).
During the year no (2014: 2.9m) Ordinary shares of 2.5p were purchased at a cost of £nil (2014: £7.4m) and subsequently cancelled.
During the year 1.7m (2014: 4.0m) Ordinary shares of 2.5p were allotted in respect of share option schemes at a price between 127p
and 260p (2014: 127p and 254p) giving rise to share premium of £3.7m (2014: £8.5m).
31 Reserves
The share premium account represents the premium arising on the issue of equity shares (see Note 30).
Merger reserve
The merger reserve represents amounts relating to premiums arising on shares issued subject to the provisions of Section 612
of the Companies Act 2006 . During the year, £21.1m was transferred from the merger reserve to retained earnings following
investment impairments and voluntary strike-offs of dormant companies (see Note 42).
Share-based payment reserve
The share-based payment reserve represents credits relating to equity-settled share-based payment transactions that have not
yet fully vested (see Note 35).
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31 Reserves
Own shares reserve
The group uses shares held in the Employee Benefit Trust to satisfy options under the group’s LTIP and SIP share option schemes.
During the year no shares (2014: 1.0m) were purchased at a cost of £nil (2014: £2.8m). In addition, 3.7m (2014: 5.8m) Treasury shares
were purchased at a cost of £10.7m (2014: £17.0m) and are held so that they can be reissued at a later date if required (see details of
Capital management risk in Note 26). The own shares reserve at 31 March 2015 represents the cost of 17.5m (2014: 13.9m) shares
in Mitie Group plc, with a weighted average of 15.1m (2014: 11.1m) shares during the year.
Other reserves
Other reserves are comprised of the revaluation reserve of £(0.2)m (2014: £(0.2)m), the capital redemption reserve of £0.5m
(2014: £0.5m) and other reserves of £0.1m (2014: £0.1m).
Hedging and translation reserve
The hedging and translation reserve of £6.4m (2014: £4.3m) includes balances in respect of the group’s cash flow hedges (see Note
26) of £5.0m (2014: £3.8m). The net cash flow hedge movement during the year of £(1.2)m (2014: £2.0m) is included within Other
comprehensive income. The hedging and translation reserve also includes balances arising on translation of the group’s overseas
operations and in respect of net investment hedges.
32 Acquisitions
During the year a net cash outflow of £0.5m arose on the acquisitions set out below:
£m
Procius Limited
2.0
Source Eight Limited
2.2
Direct Enquiries Holdings Limited
1.8
Mitie Security Holdings Limited
(5.5)
Net cash outflow on acquisitions
0.5
Current year acquisitions
Entities acquired during the year contributed £3.7m to revenue and £0.6m to the group’s headline operating profit for the period.
If the acquisitions had taken place at the start of the period, the group’s headline revenue and operating profit would have been
approximately £2,272m and £130m respectively.
The acquisitions enhanced our overall offering to clients. The goodwill arising on the acquisitions is attributable to the underlying
profitability of the companies in the acquired group, expected profitability arising from new business and the anticipated future
operating synergies arising from assimilation into Mitie. None of the goodwill recognised is expected to be deductible for income
tax purposes.
Purchase of Procius Limited
On 16 October 2014, Mitie acquired the leading UK pre-employment screening company Procius Limited (‘Procius’) from the
management team for a total consideration of £3.1m (£2.3m on a cash free basis). The transaction has been accounted for by the
acquisition method of accounting in accordance with IFRS 3 (2008). The provisional information on the acquisition is provided below.
Purchase of Source Eight Limited
On 26 November 2014, Mitie acquired a 51% stake in the real estate, technology and risk management consultancy Source
Eight Limited (‘Source8’) for initial consideration of £2.5m paid in cash on completion and up to £0.8m of deferred contingent
consideration. Further cash consideration may be payable in respect of put options over the remaining 49% bringing total
consideration for a 100% stake up to a maximum of £15.8m (£15.5m on a cash free basis). The transaction has been accounted
for by the acquisition method of accounting in accordance with IFRS 3 (2008). The provisional information on the acquisition is
provided below.
Mitie Group plc
125
32 Acquisitions
Procius
£m
Source8
£m
Total
£m
Intangible assets
1.0
0.9
1.9
0.3
2.8
3.1
0.8
0.3
1.1
(0.6)
(2.2)
(2.8)
Fair value
Net assets acquired
Corporation tax
Deferred tax liability
Net assets acquired
Goodwill
Total consideration
–
(0.2)
(0.2)
(0.1)
(0.1)
(0.2)
1.4
1.5
2.9
–
(0.7)
(0.7)
1.7
2.5
4.2
3.1
3.3
6.4
2.8
2.5
5.3
Satisfied by
Cash
0.3
0.8
1.1
Total consideration
3.1
3.3
6.4
The non-controlling shareholders of Source8 have options to put their shareholding to Mitie Group plc. Accordingly, a financial liability
of £8.0m has been recognised and a corresponding entry has been recorded against retained earnings. The options are exercisable
in tranches between 2017 and 2019.
Purchase of non-controlling interests
During the year Mitie purchased 49% of the share capital of Direct Enquiries Holdings Limited for a cash consideration of £5.6m
of which £1.8m was paid in the current year and £3.8m was paid in April 2015.
In February 2015, Mitie reduced its original business valuation of the acquisition of Mitie Security Holdings Limited in March 2013,
which resulted in a net cash inflow of £5.5m.
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32 Acquisitions
Prior year acquisitions
The provisional acquisition accounting for prior year acquisitions as disclosed in the 2014 Annual Report and Accounts was reviewed
during the period resulting in a reduction of the fair value of net assets acquired of £1.5m and an increase of goodwill of £1.5m.
These adjustments comprise an adjustment to estimates made at the end of the prior year and within a year from the date of
acquisition in line with the requirements of IFRS 3 ‘Business Combinations’. The adjustments have not materially changed the net
assets of the group and therefore the 2014 comparative information has not been restated. The final information on prior year
acquisitions is shown below.
Purchase of Complete Care Holdings Limited
On 15 January 2014, Mitie acquired the high acuity care provider Complete Care Holdings Limited (‘Complete Group’) for a total
consideration of £9.0m. The transaction has been accounted for by the acquisition method of accounting in accordance with IFRS
3 (2008). The provisional acquisition accounting in the 2014 Annual Report and Accounts was reviewed during the period resulting
in a reduction of the fair value of net assets acquired of £1.5m and an increase in goodwill of £1.5m to £8.0m. The final information
on the acquisition is provided below:
Fair value
£m
Net assets acquired
Intangible assets
2.1
2.8
0.2
(4.1)
Net assets acquired
1.0
Goodwill
8.0
Total consideration
9.0
Satisfied by
Cash
9.0
Total consideration
9.0
33 Contingent liabilities
The Company and various of its subsidiaries are, from time to time, party to legal proceedings and claims that are in the ordinary
course of business. The Directors do not anticipate that the outcome of these proceedings and claims, either individually or in
aggregate, will have a material adverse effect on the group’s financial position, other than as provided for in the accounts.
Deferred contingent consideration relating to acquisitions has been accrued at the Directors’ best estimate of the likely future
obligation of £11.4m (2014: £7.8m) per Note 27. This is the maximum amount payable subject to certain targets being attained.
In addition, the group and its subsidiaries have provided guarantees and indemnities in respect of performance, issued by financial
institutions on its behalf, amounting to £28.9m (2014: £27.2m) in the ordinary course of business. These are not expected to result
in any material financial loss.
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34 Operating lease arrangements
The group as lessee
Minimum lease payments under operating leases recognised in income for the year
2015
£m
2014
£m
25.8
27.7
At the balance sheet date, the group had total outstanding aggregate commitments for future minimum lease payments under
non-cancellable operating leases, which fall due as follows:
2015
£m
2014
£m
Within one year
15.0
22.4
In the second to fifth years inclusive
21.8
35.0
2.7
4.8
39.5
62.2
After five years
Operating lease payments represent rentals payable by the group for certain of its office properties and hire of vehicles and other
equipment. These leases have average durations ranging from three to ten years. No arrangements have been entered into for
contingent rental payments.
35 Share-based payments
The Company has seven equity-settled share option schemes:
Discretionary share plans:
The Mitie Group plc Long Term Incentive Plan (LTIP)
The LTIP was introduced in 2007. The awards of shares or rights to acquire shares (the awards) are offered to a small number of
key senior management. Where offered as options the exercise price is nil. The vesting period is three years. If the awards remain
unexercised after a period of four years from the date of grant, the awards expire. The awards may be forfeited if the employee
leaves the group. Before the awards can be exercised, performance conditions must be satisfied which are based on movements
in a range of market and non-market measures over a three year period.
The group also awards performance-related bonuses for Executive Directors which are deferred in shares and are accounted
for as a share-based payment charge.
The Mitie Group plc 2001 Executive share option scheme (ESO)
The Executive share option scheme exercise price is equal to the average market value of the shares over the five day period
immediately preceding the date of grant. The vesting period is three years. If the options remain unexercised after a period of ten
years from the date of grant the options expire. Options may be forfeited if the employee leaves the group. Before options can
be exercised, a performance condition must be satisfied; the performance condition is linked to the percentage growth in earnings
per share over a three year period.
The Mitie Group plc 2011 Executive share option scheme (ESO)
The Executive share option scheme exercise price is equal to the average market value of the shares on the business day preceding
grant or, if the Committee decides, the average market value of shares over a number of preceding business days (not to exceed 20).
The vesting period is three years. If the options remain unexercised after a period of ten years from the date of grant the options
expire. Options may be forfeited if the employee leaves the group. Before options can be exercised, a performance condition must
be satisfied; the performance condition is linked to the percentage growth in earnings per share over a three year period.
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The Conditional share plan (CSP)
The CSP was introduced in 2014 and is a discretionary scheme. The awards of shares or the rights to acquire shares (the award)
are offered to a small number of key senior management. Where offered as options the exercise price is nil. The vesting period
is determined at the discretion of the Remuneration Committee and, for the 2014 scheme, was one year. If the awards remain
unexercised after a period of ten years from the date of grant, the awards expire. The awards may be forfeited if the employee
leaves the group.
Non-discretionary share plans:
The Mitie Group plc 2001 SAYE scheme
The SAYE scheme is open to all employees. The exercise price is not less than 80% of the market value of the shares on the day
preceding the date on which invitations to participate in the scheme are issued. For options granted prior to September 2008,
the vesting period is five years. For options granted in September 2008 and thereafter, the vesting period is three years. If the
options remain unexercised after a period of six months from the date of vesting, the options expire. Options may be forfeited
if the employee leaves the group.
The Mitie Group plc 2011 SAYE scheme
The SAYE scheme is open to all employees. The exercise price is not less than 80% of the market value of the shares determined
using either: the share price preceding the date on which invitations to participate in the scheme are issued, or an average share price
over five days preceding the invitation date. The vesting period is three years. If the options remain unexercised after a period of six
months from the date of vesting, the options expire. Options may be forfeited if the employee leaves the group.
The Share Incentive Plan (SIP)
The SIP was introduced in 2011 and is a non-discretionary scheme open to all eligible UK resident employees. Under the scheme,
eligible employees are invited to invest in Partnership Shares which are purchased in the market on their behalf and held in a UK
employee benefit trust. One Matching Share is awarded for every ten Partnership Shares purchased and has a holding period
of three years. Matching Shares are funded by way of market purchases.
Details of the share options outstanding during the year are as follows:
2015
2014
Number of
share options
(million)
Weighted
average
exercise price
(p)
Number of
share options
(million)
Weighted
average
exercise price
(p)
20.3
138
21.1
142
Granted during the year
8.4
167
7.9
137
Forfeited during the year
(4.8)
77
(3.2)
121
Exercised during the year
(1.8)
203
(5.5)
158
22.1
157
20.3
138
2.4
220
2.0
204
2015
£m
2014
£m
5.4
4.5
1.1
0.5
6.5
5.0
Outstanding at beginning of the year
Outstanding at the end of the year
Exercisable at the end of the year
The group recognised the following expenses related to share-based payments:
Discretionary share plans
Non-discretionary share plans
The weighted average share price at the date of exercise for share options exercised during the year was 310p (2014: 290p).
The options outstanding at 31 March 2015 had exercise prices (other than nil in the case of the LTIP, the CSP and the SIP) ranging
from 162p – 318p (2014: 120p – 254p) and a weighted average remaining contractual life of 4.0 years (2014: 4.3 years). In the year
ended 31 March 2015, options were granted in June, July and November 2014 in respect of the SAYE, LTIP, CSP and ESO schemes.
The aggregate of the estimated fair values of the options granted on those dates was £6.9m. In the year ended 31 March 2014,
options were granted in June, July and November 2013 in respect of the SAYE, LTIP and ESO schemes. The aggregate of the
estimated fair values of the options granted on those dates was £4.0m.
The fair value of options is measured by use of the Black-Scholes and Monte Carlo models.
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129
The inputs into the Black-Scholes model are as follows:
Share price (p)
2015
2014
219-313
219-274
Exercise price (p)
0-319
0-254
Expected volatility (%)
30-32
30-32
3-5
3-5
0.55-1.48
0.55-1.48
3.5-4.1
3.5-4.1
Expected life (years)
Risk-free rate (%)
Expected dividends (%)
The inputs into the Monte Carlo model are as follows:
2015
2014
251-319
251
Average correlation with TSR benchmark (%)
29-32
32
Expected volatility (%)
21-24
24
3
3
0.64-1.29
0.64
3.5-4.1
4.1
Share price (p)
Expected life (years)
Risk-free rate (%)
Expected dividends (%)
Expected volatility was based upon the historical volatility over the expected life of the schemes. The expected life is based upon
historical data and has been adjusted based on management’s best estimates for the effects of non-transferability, exercise
restrictions and behavioural considerations.
36 Retirement benefit schemes
The group has a number of pension arrangements for employees:
a) Defined contribution schemes for the majority of our employees; and
b) Defined benefit schemes which include a group scheme and other, smaller schemes.
The group operates a number of defined contribution pension schemes for qualifying employees. In the year ended 2014, the group
auto-enrolled eligible employees into a defined contribution scheme in line with the automatic enrolment regulations. The group has
a defined benefit pension scheme called the Mitie Group plc Pension Scheme (‘Group scheme’) where Mitie Group plc is the principal
employer. The group participates in a number of other defined benefit schemes (‘Other schemes’) in respect of certain employees
who joined the group under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’).
Defined contribution schemes
A defined contribution scheme is a pension scheme under which the group pays contributions to an independently administered
fund – such contributions are based upon a fixed percentage of employees’ pay. The group has no legal or constructive obligations
to pay further contributions to the fund once the contributions have been paid. Members’ benefits are determined by the amount of
contributions paid, together with investment returns earned on the contributions arising from the performance of each individual’s
chosen investments and the type of pension the member chooses to take at retirement. As a result, actuarial risk (that pension
will be lower than expected) and investment risk (that assets invested in do not perform in line with expectations) are borne by
the employee.
The contributions are recognised as employee benefit expense when they are due.
The group operates three separate schemes: a stakeholder defined contribution plan, which is closed to new members; a
self-invested personal pension plan, which is closed to new members; and a group personal pension (GPP) plan. Employer
contributions are payable to each on a matched basis requiring employee contributions to be paid. Employees have the option
to pay their share via a ‘salary sacrifice’ arrangement. The scheme used to satisfy auto-enrolment compliance is a master trust,
The People’s Pension.
During the year, the group made a total contribution to the defined contribution schemes of £10.7m (2014: £7.8m) and contributions
to the auto-enrolment scheme of £4.1m (2014: £2.6m), which are included in the income statement charge. The group expects to
make contributions of a similar amount in the coming year.
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Defined benefit schemes
Group scheme
The Group scheme provides benefits to members in the form of a guaranteed level of pension payable for life. The level of benefits
provided depends on members’ length of service and their final pensionable pay.
The scheme closed to new members in 2006, with new employees able to join one of the defined contribution schemes. Pensions in
payment are generally increased in line with RPI inflation, subject to certain caps and floors. Benefits are payable on death and other
events such as withdrawal from active service.
The Group scheme is operated under the UK regulatory framework. Benefits are paid to members from the trust-administered
fund, where the trust is responsible for ensuring that the scheme is sufficiently funded to meet current and future benefit payments.
Plan assets are held in trust and are governed by pension’s legislation. If investment experience is worse than expected or the
actuarial assessment of the scheme’s liabilities increases, the group’s financial obligations to the scheme rise.
The nature of the relationship between the group and the Trustee is also governed by local regulations and practice. The Trustee
must agree a funding plan with the sponsoring company such that any funding shortfall is expected to be met by additional
contributions and investment outperformance. In order to assess the level of contributions required, triennial valuations are carried
out with the scheme’s obligations measured using prudent assumptions (which are determined by the Trustee with advice from the
scheme actuary). The most recent triennial valuation was carried out as at 31 March 2014.
The scheme Trustee’s other duties include managing the investment of the scheme’s assets, administration of plan benefits and
exercising of discretionary powers. The group works closely with the Trustees to manage the scheme.
Other defined benefit schemes
Grouped together under Other schemes are a number of schemes to which the group makes contributions under Admitted Body
status to clients’ (generally government or local government entities) defined benefit schemes in respect of certain employees who
transferred to Mitie under TUPE. The valuations of the Other schemes are updated by an actuary at each balance sheet date.
For the Admitted Body Schemes, which are largely sections of the Local Government Pension Scheme, the group will only
participate for a finite period up to the end of the relevant contract. The group is required to pay regular contributions as decided by
the relevant scheme actuaries and detailed in each scheme’s Contributions Certificate which are calculated every three years as part
of a triennial valuation. In a number of cases contributions payable by the employer are capped and any excess is recovered from the
entity that the employees transferred from. In addition, in certain cases, at the end of the contract the group will be required to pay
any deficit (as determined by the scheme actuary) that is assessed for its notional section of the scheme.
Further information in respect of the Group scheme and Other schemes
The table below sets out the details of the latest funding valuation of the Group scheme as at 31 March 2014.
The group made a total contribution to the Group scheme of £2.8m during the year (2014: £3.2m). The group expects to make
contributions of around £2.5m to the Group scheme in the coming year. Employees’ contribution to the cost of the scheme
(7.5% of pensionable salaries) is generally paid through a ‘salary sacrifice’ arrangement.
The group made contributions to the Other schemes of £0.4m in the year (2014: £0.4m). The group expects to make contributions
of around £0.4m to the Other schemes in the coming year.
Details of latest funding valuation
Group scheme
Date of last formal funding valuation
31 March 2014
Assets at valuation date
£143.6 million
Funding liabilities at valuation date
£149.6 million
Deficit at valuation date
£6.0 million
Contribution rate agreed to meet the cost of benefits accruing, including related expenses
22.3% of pensionable salary
Employer contribution rate (including expenses)
Employee contribution rate
To eliminate the funding deficit the Trustee and the group have agreed that additional contributions (ie over and above those required
to cover benefits being accrued) will be paid into the scheme of £11.1m by 31 March 2024 (or if less, the deficit at that time). The group
has provided security for this liability by a UK clearing bank letter of credit building up to that value to 2024.
Under this recovery plan, if the assumptions made are borne out in practice, the deficit will be eliminated by 31 March 2024.
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131
Group scheme details
The following table sets out details of the membership of the Group scheme:
Scheme details at last valuation date
Group scheme
Active members – by number
349
Active members – by proportion of funding liability
34%
Total pensionable salary roll pa
£16.9 m
Deferred members – by number
1,195
Deferred members – by proportion of funding liability
47%
Total deferred pensions pa (at date of leaving scheme)
£ 3.6m
Pensioner members – by number
515
Pensioner members – by proportion of funding liability
19%
Total pensions in payment pa
£ 1.9m
Accounting assumptions
The assumptions used in calculating the accounting costs and obligations of the group’s defined benefit pension schemes,
as detailed below, are set after consultation with independent, professionally qualified actuaries.
The discount rate used to determine the present value of the obligations is set by reference to market yields on high quality
corporate bonds. The assumptions for price inflation are set by reference to the difference between yields on longer-term
conventional government bonds and index-linked bonds. The assumption for increases in pensionable pay takes into account
expected salary inflation, the cap at CPI, and how often the cap is likely to be exceeded.
The assumptions for life expectancy have been set with reference to the actuarial tables used in the latest funding valuations,
with a lower ‘best-estimate’ allowance for future improvements to mortality.
Principal accounting assumptions at balance sheet dates
Group scheme
Other schemes
2015
%
2014
%
2015
%
2014
%
3.40
4.50
3.40
4.50
Expected rate of salary increases
1.65
2.00
1.65
2.00
Retail price inflation
3.05
3.40
3.05
3.40
Consumer price inflation
2.05
2.40
2.05
2.40
Future pension increases
3.05
3.40
3.05
3.40
Key assumptions used for IAS 19 valuation:
Discount rate
Group scheme
2015
Years
2014
Years
Current pensioners at 65 – male
88.0
88.0
Current pensioners at 65 – female
89.0
89.0
Future pensioners at 65 – male
89.0
89.0
Future pensioners at 65 – female
91.0
91.0
Post retirement life expectancy:
Life expectancy for the other schemes is that used by the relevant scheme actuary.
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The sensitivity of defined benefit obligations to changes in principal actuarial assumptions is shown below.
Amounts recognised in financial statements
The table below outlines where the group’s post-employment amounts are included in the financial statements.
2015
Group scheme
£m
Current service cost
(3.2)
Total administration expense
(0.5)
Past service cost
Amounts recognised in operating profit
Net interest cost
Amounts recognised in profit before tax
–
(3.7)
(0.7)
(4.4)
Other schemes
£m
(0.3)
–
–
(0.3)
–
(0.3)
Total
£m
2014
Group scheme
£m
Other schemes
£m
Total
£m
(3.5)
(3.6)
(0.4)
(4.0)
(0.5)
(0.4)
–
(0.4)
–
10.5
–
10.5
(4.0)
6.5
(0.4)
6.1
(0.7)
(1.3)
(0.1)
(1.4)
(4.7)
5.2
(0.5)
4.7
Group scheme
£m
Other schemes
£m
Total
£m
–
0.2
0.2
Amounts recognised in the consolidated statement of comprehensive income are as follows:
2015
Group scheme
£m
Other schemes
£m
Total
£m
2014
Actuarial (losses)/gains due to changes in
financial assumptions
(31.7)
(1.5)
Actuarial gains/(losses) due to changes in
demographic assumptions
1.4
(0.1)
1.3
0.9
–
0.9
Actuarial gains/(losses) due to liability
experience
1.2
(0.1)
1.1
(0.1)
0.3
0.2
Return on scheme assets, excluding interest
income
Contract transfers
(33.2)
13.0
0.6
13.6
3.5
(0.3)
3.2
–
2.2
2.2
–
(2.1)
(2.1)
(16.1)
1.1
(15.0)
4.3
(1.9)
2.4
The amounts included in the balance sheet arising from the group’s obligations in respect of its defined benefit retirement benefit
schemes are as follows:
2015
2014
Group scheme
£m
Other schemes
£m
Total
£m
Group scheme
£m
Other schemes
£m
Total
£m
Fair value of scheme assets
162.2
9.5
171.7
143.8
16.2
160.0
Present value of defined benefit obligations
(197.1)
(10.4)
(207.5)
(160.8)
(18.3)
(179.1)
(34.9)
(0.9)
(35.8)
(17.0)
(2.1)
(19.1)
Net pension liability
All figures above are shown before deferred tax.
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133
Reconciliation of group balance sheet
The movement in the net defined benefit obligation in the year in respect of both the Group and Other schemes is as follows:
2015
2014
Group scheme
£m
Other schemes
£m
Total
£m
Group scheme
£m
160.8
18.3
179.1
3.2
0.3
3.5
Interest cost
7.1
0.4
Contributions from scheme members
0.1
At 1 April
Current service cost
Actuarial losses/(gains) on liabilities arising
from changes in financial assumptions
Actuarial (gains)/losses liabilities arising from
experience
Other schemes
£m
Total
£m
163.7
8.1
171.8
3.6
0.4
4.0
7.5
7.4
0.5
7.9
0.1
0.2
0.2
0.1
0.3
31.8
1.5
33.3
–
(0.2)
(0.2)
(1.2)
0.1
(1.1)
0.1
(0.3)
(0.2)
Actuarial (gains)/losses on liabilities arising
from demographic assumptions
(1.4)
0.1
(1.3)
(0.9)
–
(0.9)
Benefits paid
(3.3)
(0.2)
(3.5)
(2.8)
(0.2)
(3.0)
Past service cost
–
–
–
(10.5)
–
(10.5)
Contract transfers
–
(10.2)
(10.2)
–
9.9
9.9
197.1
10.4
207.5
160.8
18.3
179.1
2015
£m
2014
£m
Active
62.8
69.1
Deferred
86.1
49.9
At 31 March
The defined benefit obligation of the Group scheme is analysed by participant status below:
Pensioners
At 31 March
48.2
41.8
197.1
160.8
Movements in the fair value of scheme assets were as follows:
2015
2014
Group scheme
£m
Other schemes
£m
Total
£m
Group scheme
£m
Other schemes
£m
Total
£m
143.8
16.2
160.0
134.0
7.9
141.9
6.4
0.4
6.8
6.0
0.5
6.5
13.0
0.6
13.6
3.5
(0.3)
3.2
Contributions from the sponsoring
companies
2.7
0.4
3.1
3.2
0.4
3.6
Contributions from scheme members
0.1
0.1
0.2
0.2
0.1
0.3
At 1 April
Interest income
Actuarial gains and losses
Expenses paid
(0.5)
–
(0.5)
(0.4)
–
(0.4)
Benefits paid
(3.3)
(0.2)
(3.5)
(2.7)
(0.2)
(2.9)
–
(8.0)
(8.0)
–
7.8
7.8
162.2
9.5
171.7
143.8
16.2
160.0
Contract transfers
At 31 March
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The history of experience adjustments is as follows:
Group scheme
2015
£m
2014
£m
2013
£m
2012
£m
2011
£m
162.2
143.8
134.0
120.7
114.5
(197.1)
(160.8)
(163.7)
(137.9)
(117.5)
Deficit in the scheme
(34.9)
(17.0)
(29.7)
(17.2)
(3.0)
Experience adjustments on scheme liabilities
0.1
0.1
(5.3)
(0.5)
(0.6)%
1.2
(0.1)%
(0.1)%
3.9%
0.4%
Experience adjustments on scheme assets
13.0
3.6
3.9
(4.3)
(0.7)
Percentage of scheme assets
8.0%
2.5%
2.9%
(3.6)%
(0.6)%
2015
£m
2014
£m
2013
£m
2012
£m
2011
£m
9.5
16.2
7.9
10.7
9.8
(10.4)
(18.3)
(8.1)
(10.8)
(9.8)
(0.9)
(2.1)
(0.2)
(0.1)
–
Percentage of scheme liabilities
Other schemes
Deficit in the scheme
Experience adjustments on scheme liabilities
Percentage of scheme liabilities
(0.1)
0.3
0.2
0.2
0.9
0.9%
(1.8)%
(2.8)%
(2.0)%
(9.2)%
Experience adjustments on scheme assets
0.8
(0.3)
0.5
0.2
(1.3)
Percentage of scheme assets
8.4%
(1.9)%
6.1%
1.6%
(13.3)%
Group
Other
Total
Asset categories
31 March 2015
Group
Equities
Other
Total
31 March 2014
61.1
6.1
67.2
55.7
9.9
65.6
Government bonds
22.8
1.0
23.8
16.0
2.4
18.4
Corporate bonds
19.2
1.0
20.2
15.8
2.4
18.2
Property
17.5
0.8
18.3
16.2
0.7
16.9
Diversified growth fund
41.3
–
41.3
36.9
–
36.9
0.3
0.6
0.9
3.2
0.8
4.0
162.2
9.5
171.7
143.8
16.2
160.0
Cash
Total fair value of assets
The investment portfolios are diversified, investing in a wide range of assets, in order to provide reasonable assurance that no
single asset or type of asset could have a materially adverse impact on the total portfolio. To reduce volatility, certain assets
are held in a matching portfolio, which largely consists of government and corporate bonds, designed to mirror movements in
corresponding liabilities.
Around 74% (2014: 75%) of the assets are held in equities, property and pooled investment vehicles which seek a higher expected
level of return over the long term.
£7m (2014: £7m) of the property assets represent freehold property, the rest are quoted property investments.
Mitie Group plc
135
The sensitivity of the defined benefit obligation for the Group scheme to changes in the principal assumptions is shown in the
table below:
Sensitivity of defined benefit obligation to key assumptions
Impact on defined benefit obligation
Discount rate
Change in assumption
Increase in assumption
Decrease in assumption
0.1%
Decrease by 2.1%
Increase by 2.1%
Decrease by 1.4%
RPI inflation*
0.1%
Increase by 1.6%
CPI inflation (excluding pay)
0.1%
Increase by 0.5% Decrease by 0.5%
Pay increases
0.1%
Increase by 0.4% Decrease by 0.4%
Life expectancy
1 year
Increase by 3.6%
–
* Including other inflation-linked assumptions (CPI inflation, pension increases, salary growth)
The sensitivity information shown above has been prepared using the same method as adopted when adjusting the results of the
latest funding valuation to the balance sheet date.
Some of the above changes in assumptions may have an impact on the value of the scheme’s investment holdings. For example,
the Group scheme holds a proportion of its assets in UK corporate bonds. A fall in the discount rate as a result of lower UK corporate
bond yields would lead to an increase in the value of these assets, thus mitigating the increase in the defined benefit obligation to
some extent.
The duration, or average term to payment for the benefits due, weighted by liability, is around 20 years for the Group scheme.
Risks and risk management
The Group scheme, in common with the majority of UK plans, has a number of risks. These areas of risk and the ways in which the
group has sought to manage them, are set out in the table below.
The risks are considered from both a funding perspective, which drives the cash commitments of the group, and from an accounting
perspective, ie the extent to which such risks affect the amounts recorded in the group’s financial statements:
Risk
Description
Asset volatility
The funding liabilities are calculated using a discount rate set with reference to government bond yields, with
allowance for additional return to be generated from the investment portfolio. The defined benefit obligation
for accounting is calculated using a discount rate set with reference to corporate bond yields.
The Group scheme holds a large proportion of its assets (around 74%) in equities and other return-seeking
assets (principally diversified growth funds (‘DGFs’) and property). The returns on such assets tend to be
volatile and are not correlated to government bonds. This means that the funding level has the potential to be
volatile in the short term, potentially resulting in short-term cash requirements or alternative security offers
which are acceptable to the Trustee and an increase in the net defined benefit liability recorded on the group’s
balance sheet.
The group believes that equities and DGFs offer the best returns over the long term with an acceptable level
of risk and hence holds a significant proportion of these types of asset. However, the schemes’ assets are
well-diversified by investing in a range of asset classes, including property, government bonds and corporate
bonds. The Group scheme holds 25% of its assets in DGFs which seek to maintain high levels of return whilst
achieving lower volatility than direct equity funds. The allocation to return seeking assets is monitored to
ensure it remains appropriate given the scheme’s long-term objectives. The investment in bonds is discussed
further below.
Changes in
bond yields
136
Falling bond yields tend to increase the funding and accounting liabilities. However, the investment in corporate
and government bonds offers a degree of matching, ie the movement in assets arising from changes in bond
yields partially matches the movement in the funding or accounting liabilities. In this way, the exposure to
movements in bond yields is reduced.
Mitie Group plc
Strategic Report
Governance
Financial
Risk
Description
Inflation risk
The majority of the scheme’s benefit obligations are linked to inflation. Higher inflation will lead to higher
liabilities (although caps on the level of inflationary increases are in place to protect the plan against extreme
inflation). The majority of the Group scheme’s assets are either unaffected by inflation (fixed interest bonds)
or loosely correlated with inflation (equities), meaning that an increase in inflation will also increase the deficit.
Life expectancy
The majority of the schemes’ obligations are to provide a pension for the life of the member, so unexpected
increases in life expectancy will result in an increase in the liabilities.
Areas of risk management
Although investment decisions in the scheme are the responsibility of the Trustee, the group takes an active interest to ensure that
pension plan risks are managed efficiently. The group and Trustee have agreed a long-term strategy for reducing investment risk
where appropriate.
Certain benefits payable on death before retirement are insured.
In the year ended 31 March 2014 following a strategic review of the Group scheme, a cap on increases in pensionable pay was
introduced, significantly reducing the risk of salary increases increasing the liability associated with past and future benefits.
37 Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are
not disclosed in this Note.
During the year, the group derived £0.3m (2014: £10.5m) of revenue from contracts with joint ventures and associated undertakings.
At 31 March 2015 trade and other receivables of £nil (2014: £7.5m) were outstanding and loans to joint ventures and associates of
£1.1m (2014: £14.8m) were included in Financing assets.
Mitie Group plc has a related party relationship with the Mitie Foundation, a charitable company, as R McGregor-Smith and S C
Baxter are two of the trustees of the Foundation. During the year, the group made donations of £25,000 (2014: £63,000) and gifts
in kind of £277,000 (2014: £298,000) to the Foundation. At the end of the year £23,000 (2014: £17,000) was due to the Foundation
and the Foundation had £11,000 (2014: £3,000) held within creditors as an amount accrued to Mitie Group plc.
No material contract or arrangement has been entered into during the year, nor existed at the end of the year, in which a Director
had a material interest.
The group’s key management personnel are the directors and Non-Executive Directors whose remuneration is disclosed in the
audited section of the Directors’ remuneration report. The share-based payment charge for key management personnel was
£1.6m (2014: £1.5m).
Mitie Group plc
137
38 Notes to the consolidated statement of cash flows
2015
Headline
£m
Operating profit/(loss)
Other items
£m
2014
Total
£m
Headline
£m
Other items
£m
Total
£m
128.6
(72.6)
56.0
127.5
(44.9)
82.6
Share-based payment expense
6.5
–
6.5
5.0
–
5.0
Defined benefit pension charge/credit
4.0
–
4.0
4.4
(10.5)
(6.1)
Defined benefit pension contributions
(3.1)
–
(3.1)
(3.6)
–
(3.6)
Adjustments for:
Acquisition related items
Depreciation of property,
plant and equipment
Amortisation of intangible assets
Other non-cash movements in Other items
–
0.3
0.3
–
0.7
0.7
19.7
–
19.7
16.1
–
16.1
17.0
3.7
10.1
13.8
5.2
11.8
–
19.0
19.0
–
–
Share of profit of joint ventures
and associates
(0.7)
–
(0.7)
(0.5)
–
(0.5)
Loss/(gain) on disposal of property,
plant and equipment
0.3
–
0.3
(0.7)
–
(0.7)
115.8
153.4
(42.9)
110.5
–
(3.8)
(0.8)
–
(0.8)
Operating cash flows before movements
in working capital
Increase in inventories
159.0
(3.8)
(43.2)
Decrease/(increase) in receivables
36.6
16.8
53.4
(2.4)
–
(2.4)
(Decrease)/increase in payables
(45.9)
(5.0)
(50.9)
2.2
14.6
16.8
(1.3)
–
–
–
113.2
152.4
(28.3)
124.1
56.0
127.5
Decrease in provisions
(1.3)
144.6
–
(31.4)
Cash conversion
Operating profit
128.6
82.6
Depreciation
19.7
19.7
16.1
16.1
Amortisation
3.7
13.8
5.2
17.0
Earnings before interest, tax, depreciation
and amortisation (EBITDA)
152.0
89.5
148.8
115.7
Cash conversion1
95.1%
126.5%
102.4%
107.3%
Free cash flow
113.2
124.1
Purchase of property, plant and equipment
(23.0)
(20.6)
(3.9)
(6.2)
1.8
6.0
Income taxes paid
(15.5)
(18.2)
Interest paid (including facility extension fees)
(15.1)
(13.1)
Free cash flow
57.5
72.0
Purchase of other intangible assets
Disposals of property, plant and equipment
1 Cash conversion is calculated as cash generated by operations as a percentage of EBITDA
138
Mitie Group plc
Strategic Report
Governance
Financial
39 Principal subsidiaries
The companies set out below are those which were part of the group at 31 March 2015 and in the opinion of the directors
significantly affected the group’s results and net assets during the year. Principal subsidiaries are incorporated in the United Kingdom
and are held directly or indirectly by Mitie Group plc.
At 31 March
2015
% Voting
rights owned
At 31 March
2015
% Ownership
interest
At 31 March
2015
% Nominal
value owned
Division
Activities
Principal subsidiaries
Soft FM
Soft FM includes cleaning
and environmental services,
security, catering and front
of house services.
Mitie Facilities Services Ltd
100%
100%
100%
Mitie Cleaning & Environmental
Services Ltd
100%
100%
100%
Mitie Landscapes Ltd
100%
100%
100%
Mitie Security Holdings Ltd
100%
100%
100%
Mitie PFI Ltd
100%
100%
100%
90.3%
90.3%
99.85%
Hard FM
Hard FM includes a range of
technical and building services.
Mitie Technical Facilities
Management Ltd
Property
Management
Property management provides
long-term contract solutions to
a range of clients in the domestic
housing market.
Mitie Property Services (UK) Ltd
100%
100%
100%
Energy Solutions
Our Energy Solution division
provides energy consultancy
to clients.
Utilyx Ltd
100%
100%
100%
Healthcare
Healthcare provides homecare
(also known as adult social care)
services to people who require
help and support due to illness
or disability.
MiHomecare Ltd
100%
100%
100%
No subsidiaries have non-controlling interests that are material to the group. Whilst the group has 90.3% voting rights and ownership
interest in Mitie Technical Facilities Management Limited, Mitie is entitled to a threshold amount of profit and net assets in the
recapitalised business which reduces the non-controlling interests.
The companies listed above represent the principal subsidiary companies of the group. A full list of subsidiary companies will be
annexed to the next Annual Return.
Mitie Group plc
139
Company balance sheet
At 31 March 2015
Notes
2015
£m
2014
£m
42
703.7
739.5
703.7
739.5
30.5
14.7
30.5
14.7
734.2
754.2
(97.9)
(276.9)
Fixed assets
Investments in subsidiary undertakings
Total fixed assets
Current assets
Debtors
43
Total current assets
Total assets
Creditors: amounts falling due within one year
45
Provisions
46
–
(1.2)
Total current liabilities
(97.9)
(278.1)
Net current liabilities
(67.4)
(263.4)
Total assets less current liabilities
636.3
476.1
Net assets
636.3
476.1
Capital and reserves
Share capital
30
9.4
9.3
47
122.6
118.9
Merger reserve
47
80.1
101.2
Share-based payments reserve
47
16.7
12.6
Own shares reserve
47
(47.5)
(37.2)
Other reserves
47
0.5
0.5
Profit and loss account
47
454.5
270.8
636.3
476.1
Equity shareholders’ funds
The financial statements of Mitie Group plc, company registration number SC019230, were approved by the Board of Directors and
authorised for issue on 18 May 2015. They were signed on its behalf by:
Chief Executive
140
Suzanne Baxter
Mitie Group plc
Strategic Report
Governance
Financial
Notes to the Company financial statements
40 Significant accounting policies
Basis of accounting
The separate financial statements of the Company are presented as required by company law. They have been prepared under
the historical cost convention and in accordance with applicable United Kingdom Accounting Standards and law.
With effect from 1 April 2015, in response to the change in financial reporting standards in the United Kingdom, the Company will
be electing to prepare its financial statements in accordance with Financial Reporting Standard (FRS) 101 ‘Reduced Disclosure
Framework’. FRS 101 applies International Financial Reporting Standards (IFRSs) as adopted by the European Union with certain
disclosure exemptions. The application of FRS 101 is not expected to have a significant impact on the Company.
As more fully detailed in the Directors’ report, the Company’s financial statements have been prepared on a going concern basis.
The principal accounting policies are summarised below. They have been applied consistently throughout the year and the
preceding year.
Investments
Fixed asset investments in subsidiaries are shown at cost less any provision for impairment.
Provisions
Provisions are recognised when the Company has a present obligation as a result of a past event and it is probable that an outflow
of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the
amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, for example under an insurance
contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense
relating to any provision is charged to the profit and loss account, net of any reimbursement. If the effect of the time value of money
is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the
increase in the provision due to the passage of time is recognised as a borrowing cost.
Taxation
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or
substantively enacted at the balance sheet date.
Deferred tax is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right
to pay less tax, at a future date, at rates expected to apply when they crystallise based upon tax rates and legislation that have been
enacted or substantively enacted at the balance sheet date. Timing differences arise from the inclusion of items of income and
expenditure in tax computations in periods different from those in which they are included in the financial statements. Deferred tax is
not provided on timing differences, or on unremitted earnings of subsidiaries and associates where there is no commitment to remit
these earnings. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered.
Deferred tax assets and liabilities are not discounted.
Trade receivables are measured at initial recognition at fair value. Appropriate allowances for estimated irrecoverable amounts are
recognised in the profit and loss account where there is objective evidence that the asset is impaired.
Interest bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges,
including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the profit
and loss account and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which
they arise.
Trade payables are measured at amortised cost.
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Financial assets and financial liabilities are recognised on the Company’s balance sheet when the Company becomes a party to the
contractual provisions of the instrument.
The group operates a number of executive and employee share option schemes. Equity-settled share-based payments to
employees are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of
non-market based vesting conditions. For all grants of share options and awards, the fair value as at the date of grant is calculated
using the Black-Scholes or Monte Carlo models and the corresponding expense is recognised on a straight-line basis over the vesting
period based on the group’s estimate of shares that will eventually vest. At each balance sheet date, the group revises its estimate
of the number of equity instruments expected to vest as a result of the effect of non-market based vesting conditions. Save As You
Earn (SAYE) options are treated as cancelled when employees cease to contribute to the scheme, resulting in an acceleration of the
remainder of the related expense.
Options over the Company’s shares awarded to employees of the Company’s subsidiaries are accounted for as a capital contribution
within the carrying value of investments in subsidiary undertakings.
Mitie Group plc
141
40 Significant accounting policies
Pensions
Pension costs represent amounts paid to one of the group’s pension schemes. For the purposes of FRS 17 ‘Retirement Benefits’ the
Company has been unable to identify its share of the underlying assets and liabilities of the group defined benefit pension scheme
on a consistent and reasonable basis. Therefore the Company is accounting for contributions to the scheme as if it were a defined
contribution scheme. Note 36 to the consolidated financial statements sets out the details of the IAS 19 ‘Employee Benefits’ net
pension liability of £34.9m (2014: £17.0m).
41
Profit for the year
As permitted by Section 408 of the Companies Act 2006 the Company has elected not to present its own profit and loss account
for the year. Mitie Group plc reported a profit after taxation for the financial year ended 31 March 2015 of £201.2m (2014: £34.9m).
The auditor’s remuneration for audit services to the Company was £33,000 (2014: £33,000).
Detailed disclosures of Directors’ remuneration and share options are given in the audited section of the Directors’ remuneration
report contained in the consolidated financial statements.
42 Investments in subsidiary undertakings
£m
Shares at cost
At 1 April 2014
Additions
Capital contribution re share-based payments
Disposals
At 31 March 2015
743.8
(6.6)
4.1
(5.0)
736.3
Provision for impairment
At 1 April 2014
Impairment
At 31 March 2015
4.3
28.3
32.6
Net book value
At 31 March 2015
At 31 March 2014
A listing of principal subsidiaries is given in Note 39.
The cumulative cost of non-compete agreements included in investments is £4.6m (2014: £4.6m).
Disposals in the period relate to the voluntary striking-off of dormant subsidiaries within the group.
The impairments during the year primarily relate to the Company’s investment in Utilyx Asset Management Limited following
the exceptional charges in Energy Solutions.
142
Mitie Group plc
703.7
739.5
Strategic Report
Governance
Financial
43 Debtors
Amounts owed by subsidiary undertakings
2015
£m
2014
£m
28.5
11.3
Other debtors
0.5
–
Prepayments and accrued income
0.8
3.1
Corporation tax
0.1
–
Deferred tax asset (Note 44)
0.6
0.3
30.5
14.7
The Directors consider that the carrying amount of debtors approximates their fair value.
44 Deferred tax
Share-based
payment timing
difference
£m
Deferred tax asset at 1 April 2014
0.3
Credit to the profit and loss account
0.3
Deferred tax asset at 31 March 2015 (Note 43)
0.6
45 Creditors: amounts falling due within one year
2015
£m
2014
£m
81.3
98.1
–
1.2
Amounts owed to subsidiary undertakings
5.2
148.0
Other taxes and social security
0.3
15.1
Accruals and deferred income
11.1
11.9
–
2.6
97.9
276.9
Overdraft
Trade creditors
Corporation tax
Amounts owed to subsidiary undertakings are repayable on demand.
The Directors consider that the carrying amount of creditors approximates their fair value.
The Company’s bank overdrafts are part of the group’s banking arrangements and are offset against credit balances within
the group. The Company has adequate liquidity to discharge all current obligations.
For details of group borrowings, see Note 25.
Mitie Group plc
143
46 Provisions
Deferred
contingent
consideration
£m
At 1 April 2014
1.2
Other movements in the year
(1.2)
At 31 March 2015
–
47 Reserves
Share
capital
£m
Share
premium
account
£m
Merger
reserve
£m
Share–based
payments
reserve
£m
Own shares
reserve
£m
Other
reserves
£m
Profit
and loss
account
£m
Total
£m
At beginning of year
9.3
118.9
101.2
12.6
(37.2)
0.5
270.8
476.1
Shares issued
0.1
3.7
–
–
–
–
–
3.8
(10.7)
Purchase of own shares
–
–
–
–
(10.7)
–
–
–
–
–
4.1
0.4
–
1.9
6.4
Profit for the year
–
–
–
–
–
–
201.2
201.2
Reserves transfer
–
–
(21.1)
–
–
–
21.1
–
Dividends paid
to shareholders
–
–
–
–
–
–
(40.5)
Balance at
31 March 2015
9.4
122.6
80.1
16.7
(47.5)
0.5
454.5
(40.5)
636.3
As at 31 March 2015, the Company had distributable reserves of £219.0m.
Details of dividends are given in Note 11 of the consolidated financial statements.
48 Contingent liabilities
Details of contingent liabilities have been given in Note 33 of the consolidated financial statements.
Equity-settled share option schemes
The Company has seven share option schemes as described in Note 35 of the consolidated financial statements.
The Company recognised an expense of £2.2m (2014: £2.4m) related to the share-based payment charge for discretionary
share option schemes.
The fair value of options is measured by use of the Black-Scholes and Monte Carlo models. The inputs into the Black-Scholes
and Monte Carlo models are as described in Note 35 of the consolidated financial statements.
50 Related parties
The Company makes management charges to all of its subsidiaries, whether they are wholly-owned or otherwise, and receives
dividends from its subsidiaries, according to their ability to remit them. Other details of related party transactions have been given
in Note 37 of the consolidated financial statements.
144
Mitie Group plc
Strategic Report
Governance
Financial
Shareholder information
Results
2016 Half-yearly results
23 November 2015
Dividends
2015 Half-yearly dividend 5.2p paid
2 February 2015
2015 Final dividend 6.5p (proposed)
–
2015 Final ex-dividend date
25 June 2015
2015 Final dividend record date
26 June 2015
2015 Final dividend payment date
2015 Final dividend last date for receipt/revocation
of DRIP mandate
4 August 2015
10 July 2015
2015 Annual General Meeting
2015 Annual General Meeting
Company details
Mitie Group plc
1 Harlequin Office Park
Fieldfare
Emersons Green
Bristol
BS16 7FN
Telephone: 0117 970 8800
Fax: 0117 301 4159
Email: [email protected]
Website: www.mitie.com
Registered number: SC019230
Registrars
13 July 2015
Dividend reinvestment plan (DRIP)
Mitie has set up a dividend reinvestment
plan (DRIP) to enable you to build
your shareholding by using your cash
dividends under a standing election to
buy additional shares in Mitie. If you
would like to receive further information,
including details of how to apply, please
call Capita Asset Services on 020 8639
3402 or contact them by sending an
email to: [email protected].
Mitie online share portal
Mitie has launched a shareholder portal
where shareholders can register and can:
a access information on
shareholdings and movements;
a update address details;
a view dividend payments
received and register bank
mandate instructions;
a sell Mitie shares;
a complete an online proxy voting
form; and
a register for e-communications
allowing Mitie to notify shareholders
by email that certain documents
are available to view on its
website. This will further reduce
Mitie’s carbon footprint as well
as reduce costs.
If you wish to register, please sign up at
www.mitie-shares.com
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Telephone: 0871 664 0300*
Website: www.mitie-shares.com
* calls cost 10p a minute plus network extras, lines are open 9.00am – 5.30pm Mon – Fri.
Designed and produced by Radley Yeldar | www.ry.com
Photography by Ed Robinson.
Printed by Park Communications on FSC® certified paper.
Park is an EMAS certified company and its Environmental
Management System is certified to ISO 14001.
100% of the inks used are vegetable oil based, 95% of press
chemicals are recycled for further use and, on average 99%
of any waste associated with this production will be recycled.
This document is printed on Edixion Offset, a paper containing
100% Environmental Chlorine Free (ECF) virgin fibre sourced
from well-managed, responsible, FSC® certified forests.
Corporate website
This report can be downloaded in
PDF format from the Mitie website,
which also contains additional general
information about Mitie. Please visit
www.mitie.com
A huge thank you
To our people, who excel, challenge
and inspire every day, and
make Mitie the business it is today.
Mitie Group plc
1 Harlequin Office Park, Fieldfare, Emersons Green
Bristol BS16 7FN, United Kingdom
T: +44 (0) 117 970 8800 E: [email protected]

MITIE Group plc Annual Report 2015

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